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

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

Off the back of yesterday’s press release, Mike spoke to us to give us a bit more colour on the details about the Public Hearing and the results of the first months test on the new ore sorter.

Interview highlights:

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

Click here to watch the interview.


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Mike Hodgson: I will Matthew. 


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

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I <3 geology, I <3 Ecuador

A photo of some colourful wooly hats.

In June 1991 I was unlocking my bicycle after my last first-year exam in geology at the University of Manchester when a bubbling surge of happiness stopped me in my tracks and made me look up and smile and just take it all in. I couldn’t believe that I had gone through my life until then without knowing what I had been taught in my first year of geology. It had opened my mind to new concepts of time and space, fascinating processes of rock and mineral formation, and also of how geology had influenced human activity through millennia. It had been a revelation, hard work, and a lot of fun. For me, the study of the science of the earth had shone a light onto politics, economics, the environment, climate change and of course the role of mineral deposits in the development of man. As I stood there, bicycle lock in hand, I thought how amazing the world was, and how much I loved this subject that I had come across by chance when I had mistakenly started an engineering degree.

Twenty-nine years later I am happy to say that my love of geology is still there. While the digital age thunders on, with apps and memes, full of ideas on a high-tech future, full of concerns about sustainability and climate change, geology is as relevant as ever and it still captures my imagination. As it was in my revelatory moment back in Manchester, so it seems to me that many of the key issues of the age are met in the exploration and development of mineral deposits. Is this too gushing¸ a case of hyperbole?  I argue that it is not an exaggeration, and that a look at the extraordinary events in Ecuador will help you share my appreciation.

The Ecuador national flag

Ecuador has it all. All of the issues, all of the challenges, all of the opportunities and all of the natural resources it might need to make a transformation. And I see this on a daily basis as I am a director of Salazar Resources, a proudly Ecuadorian Gold-Copper exploration and development company.

Ecuador is a traditionally socialist country that until recently had economic policies that deterred foreign direct investment in the mining sector. In 2007 the country trumpeted its eco-tourism and promoted a green economy, which was all well and good, apart from the fact that the country soon ran out of money. And in a dollarized economy (since 2000), printing is not an option which just leaves borrowing, inward investment or foreign export earning as potential sources of US dollars. In 2008, Ecuador borrowed $6.5 billion from China, with repayments partially based in Ecuadorian oil and terms negotiated at times of historic high oil prices.  While the oil price was strong, everything seemed fine, but commodity prices are cyclical and the cycle turns as inexorably as the arrival of taxes and death. Oil prices to 2014 had covered up the multiple sins of an inefficient public sector, large macroeconomic imbalances, and limited private investment, but eventually the oil price fell. As the new oil price reality bit, and growth opportunities in Ecuador (oil, agriculture, tourism) were remarkable by their absence, the government reassessed its attitude towards mining.

Maybe the 2008 moratorium on all mining was overkill? Maybe a subsequent imposition of a 70% windfall tax and mechanisms for 50% national ownership were deterrents on investment? Maybe the rampant illegal mining sector that paid no taxes and was completely unregulated in areas of environmental monitoring safety or any degree of social governance, should be brought under control? Maybe it would be better to have foreign direct investment to build a regulated, responsible mining industry that employs thousands, grows domestic economic capacity, pays royalties and taxes and earns hard currency? Maybe the mining sector in Ecuador should be nurtured not shunned? Maybe the remarkable geological endowment should be used to help build a better nation for the people?

An ineluctable truth emerged. Ecuador needed a modern mining industry to pay for its social and infrastructure agenda.  There were no other options, no other cards to play. And so reform was embraced.  Consultants helped create a plan for the Ecuadorian mining industry that led to bidding rounds by metal and by region, and critically the development of a new mining code.  The government introduced similar conditions to other countries, including incentives such as a fiscal stability agreement, VAT reimbursements and investment recovery before taxes kicked in. The results were astonishing.

A photo of copper-gold ore.
Copper-gold ore

Geology is apolitical, and copper-gold mineralisation doesn’t necessarily stop at a political border. Ecuador straddles some of the most prolific copper-gold geology on the planet and since the dawn of modern mineral prospecting it has experienced negligible systematic exploration. Almost uniquely for a peaceful country there are still walk-up large-scale high-grade deposits sitting at surface. When the government signalled it was serious about developing a modern mining industry, the world’s resources companies responded.

Almost overnight, Ecuador became a global mining investment destination. Foreign direct investment (“FDI”) surged to more than $250 million per year in 2017, with a projected $1 billion per year for the next four years. Over 200 new mining concessions were granted in 2017, accompanied by investment commitments of nearly $500 million of exploration expenditure in the first four. Since 2018, twenty-eight internationally renowned mining companies have established entities in Ecuador to pursue investment opportunities. Not only that but in 2019 two billion-dollar investments were completed, and the country now has two well-regulated, carefully monitored mines, employing thousands of local people, and generating vital foreign exchange earnings by producing copper at Mirador, and gold at Fruta del Norte.

Unsurprisingly there has been a backlash to this level of activity. A prominent anti-mining activist Carlos Perez has changed his name to Yaku Perez (Yaku is the Quechua word for water) and is vehemently opposed to foreign investment in the Ecuadorian mining industry, even though he turns a blind eye to the devastatingly destructive illegal mining in the country. Yaku regularly calls for referenda on the future of mining projects in Ecuador and he will continue to delay and obstruct the industry where he can as he persists in his argument that Ecuador should be pro-water and anti-mining. Incidentally, most professionals in the mining industry are supporters of clean water, responsible employment, wealth creation, the sustainable supply of vital raw materials and are not supporters of water pollution, environmental degradation, dangerous working conditions, tax evasion and all of the problems associated with illegal mining.

Another factor is that the population of Ecuador is split between those wanting jobs and those experiencing a very human resistance to change. What does a large mine entail? Will dastardly miners raze mountains, and bury villages under toxic waste? Some fear the rapid introduction of a new industry; others have the luxury of working closely with some of the many in-country professionals and learning first-hand about the industry. Suddenly the Chamber of Mines in Ecuador went from a clubby outfit to needing to assist the government and a population learn about the role and importance of a well-regulated mining industry in society.

Predictably, some of the mining companies gamed the system. Companies bid to spend $250 million on a single exploration licence (a ludicrously large amount) over four years, only to load the vast majority of the spend into Year 4 and then make it conditional on material success in the under-funded years 1-3. Companies committed to investing multiples of their market capitalisation in early-stage exploration within a 4-year period. Stuff and nonsense perhaps, but given that it seems easier to find a near-surface deposit in Ecuador then other parts of the world, many companies were enable by the vagueness of the new mining code to put placeholders on title in the rush.

Stunned by the whirlwind of real and promised FDI, protest referenda, the arrival of most of the major mining companies, and by the general pace of events, the government closed the Mining Cadastre in 2018. The commitment to a modern mining industry is as strong as it has ever been, supported by public pronouncements, progressive changes to process and structure within the mining ministry, and of course, the stark reality of ongoing national budget deficits. But it was a case of too much too quickly. The cadastre is still closed as the government is redesigning the mineral title permitting process to make the exploration expenditure more accountable, transparent and digital. No new licences have been issued for eighteen months and although in that time wrinkles in environmental permitting and water use permitting have been ironed out, there has been a knock-on delay in exploration activity. It does mean, however, that those companies that already have a licence portfolio are at an advantage over new entrants looking to build a presence in-country.

Which brings me full circle, to that moment when I was standing outside the exam hall in Manchester so long ago. The study of the science of the earth continues to shine a light onto politics, economics, the environment, climate change and of course the role of mineral deposits in the development of man. I am just as excited and fascinated by the interdisciplinary nature of my subject as I was as an undergraduate, and each of those competing and complimentary aspects are manifest in the gloriously complex reality of the mining industry today in Ecuador.

Companies, such as Salazar Resources, that already have mineral title to explore have a wonderful opportunity to continue the discovery journey (discovery of an economic resource is always much more of a process than a single moment in time). Community relations and environmental stewardship are critically important, and those enterprises that can bring its local and regional population along the discovery journey with them will succeed where companies that fail to engage, encourage, and educate its neighbours will face protest and delay. The government understands the vital developmental and economic role that a responsible mining industry offers and it is working as fast as it can to create the framework for that industry to grow, and yet it is weighed down by the responsibility of having to make decisions now that will have long-lasting effects. It is no exaggeration to say that the fate of the nation depends on it. The officers and directors of companies that I know are genuinely excited about the positive transformation that a single well run mine can make to individuals, families, a community, a region, and the contribution that it makes to nation-building in a relatively small economy. And within it all there are the pure geologists among us, thrilled at the prospect of being part of a team that will make the next big discovery and bring vital commodities for our future needs to market.

Company Website: www.salazarresources.com

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

Pan African Resources (LSE: PAF) – Be-Be-Beating Hard Times, That is my Theme (Transcript)

Interview with Cobus Loots, CEO of Pan African Resources (LSE: PAF).

These guys get things done. Mining is never easy, mining in South Africa is far from easy, but the management team at gold producer, Pan African Resources, keep finding a way to get things done and are consistently hitting targets. Pan African is well on its way to becoming a mid-tier gold producer targeting 185,000oz per annum this year. Loots ran us through the highs and lows of the last 6 months, including the recently released operational update.

Pan African Resources has a share price of GB£0.125 and a market cap of GB£278M. It is listed on the LSE.

The key highlights from the update?

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

We like the tailings slant on the business. Green is very fashionable right now. 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 is now mining more economically due to a strategy change: 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 existing infrastructure, Pan African 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 recently released its first dividends for years. Loot states the company was recently one of the highest yielding gold dividend shares in the world. Loots states that he wants to get back there. 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.

Interview highlights:

  • 1:34 – Operational Update: Overview of Performance Results
  • 2:45 – Producing as Expected? A Run Through the Projects
  • 8:27 – AISC and Debt: What is the Current Position and What’s to Come?
  • 9:39 – Dividends: Keeping Them Going
  • 12:40 – Troubles in Jurisdiction and Community Issues: How Will They Ensure a Smooth Run of Operations?
  • 16:14 – What Should We Look Forward to from Pan African Resources?

Watch the interview here.


Matthew Gordon: Happy New Year. I haven’t spoken to you since before Christmas, so how are you?

Cobus Loots: Thanks, Matthew. We’re good. We’ve been busy as you might have seen from the operational update.

Matthew Gordon: We have, that’s why we called you. It seems like you have had a good last 6-months. You are on target to hit 185,000oz; that puts you very much in the mid-cap territory for sure. Are you pleased with your performance?

Cobus Loots:  Yes. We believe that, certainly the performance for the first 6-months provides a solid base for us to have a very good financial year. So Elikhulu performed very well, so we produced almost 30,000oz. We are well-positioned now actually for the next 6-months to increase that to go to almost 65,000oz for the full year so that is a great performance. Barberton was down slightly, mostly as a result of underground. But we have more flexibility now so we expect a much better 6-months, going forward from Barberton. And then also, and what I think is very positive, the work that we have done in the Evander 8 Shaft pillar. This project has gone from being a liability to actually now being poised to generate attractive cash flows going forward for the next 3-years.

Matthew Gordon: Okay. If you don’t mind, can we just break down that 185,000oz that you are going to be producing. You’ve got your existing Barberton and Elikhulu, both on the tailings and the mining front, and they are going as planned? The numbers are as targeted, first of all?

Cobus Loots: Well yes.Let’s start with Elikhulu first of all which we started last year: it’s a world class project. It is USD$130M that we put into the ground. It retreats old historic mining tailings, and it has a life of 12-years at present. And it is producing at an All In Sustaining Cost of USD$650 per oz or below. I think what’s more is that we are cleaning up legacy liabilities so it ticks the box in terms of ESG, looking after the environment, etc. So it’s a great project. It’s incredibly safe. We don’t have as many employees as what we would have had underground. So, we are very happy with the performance at Elikhulu, and as I said, we expect Elikhulu to do even better over the next 6-months.

And then the Barberton complex, which is also a world class tailings business, the BTRP, we do have about 20,000oz from the BTRP at Barberton and then 80,000oz at underground. So that gives us another 100,000oz per year, from Barberton. And then as I said, the Pillar, which is a project that we commissioned at the moment at Evander, that will give us 20,000oz which then actually becomes 30,000oz and more in the years ahead.

Matthew Gordon: Okay. And you actually refer to that as a former liability. Why was that?

Cobus Loots:  We curtailed operations at 8 Shaft, so we were mining 24 level, which was very deep. With a lot of infrastructure, a lot of logistics, a huge number of employees. So we curtailed that business about 2 years ago. We actually shut it down. And then the sort of question arose: what do we do with the remaining resource? We could have quite simply terminated operations at 8 Shaft, and that would have been the end. Instead, we said, let’s have a look at this Pillar project, let’s see what sort of Gold we can get out and over what sort of timeframe and at what margin, importantly. And that’s how the 8 Shaft pillar project has happened.

Matthew Gordon: Right. So basically, it was costing you a lot of money to get Gold out of the ground. It was becoming less and less profitable, having sunk a lot of money into the ground there as well. So you are now mining more economically as a result. That’s the point of what you have done?

Cobus Loots: Well, we are ceasing operations at the bottom levels which are very expensive and we are actually starting mining right at the shaft. So we have guided, we have anticipated that the all in sustaining costs of this Pillar project to be below USD$1000, which is very attractive. And that’s in-line with the rest of our operations.

Matthew Gordon: And Cobus, can I just ask you about Egoli, because you have obviously talked about the MFS, the mine Feasibility Study has been finalised now. Where are you at with that? What should we be excited about?

Cobus Loots: Yes. It has been a very interesting project from our perspective, as you said, the Mining Feasibility Study has been done. We are actually getting the study independently vetted by a third party and then they are expanding it to a full Feasibility Study, the results of which will be available pretty much at the same time as our interim financial results.

Matthew Gordon: Right.

Cobus Loots: And yes, circa 90,000oz per year, initially life of mine 9-years but if we model for the resources, it’s anywhere from 15 to 20-years.  At a fairly limited capital number for a project of this nature because of the fact that you are utilising existing infrastructure mostly: there is a processing plant, it’s operational on surface, we have the vertical shaft that’s all done. There are turns, certainly, currently, even a conservative Gold price to be attractive. So I think, you know, watch this space in terms of Egoli and our next steps when we release our interim results.

Matthew Gordon: Okay, when does that actually…how does that ramp up? How quickly does that ramp up?

Cobus Loots: You know, we haven’t yet pushed the button on development. The key is to finalise funding. And we what we have said to shareholders, we will not do the funding in any way that is dilutive. So we are looking at potentially bring in a stream or an equity investor of sorts. Certainly, the project has dig capacity in our view also. Once we are happy with the Feasibility Study and the fact that we can manage the risks, and it is a project that we need to be doing, from a pipeline perspective, we will finalise the funding and we will certainly add a time frame in terms of development.

Matthew Gordon: Okay. So the timing is not imminent? Because when I asked you earlier about, have you plans for adding debt for this year, you said, no. So, this is not a 2020 debt solution. You are saying that will come after that?

Cobus Loots: That’s right. The ramp-up period is three years, and most of the capital is spent in the later years. And if we potentially look to get in an equity investor, or some other form of finance, then that sort of takes off the burden, certainly from ourselves. But in terms of existing operations, certainly, we will be set in terms of debt, that holds true so we are not going to look to gear up the existing operations to fund a project like this. I think that it will stand on its own two feet.

Matthew Gordon: Okay. So you have been looking at the AISC and looking at ways of reducing it. I mean, I guess it is pretty standard: getting somewhere between USD$950 USD$1,000 is where you want to be, especially in today’s Gold price. So you are obviously throwing off a lot more cash, but you’ve also had to finance a lot of the development work with debt so what is the position on that at the moment?

Cobus Loots: Well, for 6-months to December, we have managed to de-gear the balance sheet and we have guided that in the year ahead, we should see a dramatic decrease in our gearing levels. You know, that’s a product of the Pillar coming into production, so we will be steadily instating the Pillar in March. It’s a product of Elikhulu performing at a steady state and the operations at Barberton performing. Certainly, what’s helping us also is the Gold price which is performing well in US dollars and even more so in South African Rand which is the currency that we look at.

Matthew Gordon: Yes. Okay. So, if I may just touch upon this here; a lot of mid cap and a lot of large companies, they tend to borrow money, then plough it back into the ground and kind of forget about shareholders. You issued your first dividend for a couple of years recently, what are your plans for keeping that going? Are you going to give back to long-holding shareholders in your company? Or is it the plan just to reinvest into the ground?

Cobus Loots: Well, if you look at our priorities in terms of how we apply capital, we need to continue to invest in our assets. But in the past, we have managed to do so, and then also pay an attractive dividend. Certainly, up to quite recently, we were one of the highest yielding Gold dividend shares in the world. And that’s where we’d like to get back to. And I think the operating environment in terms of the robustness of our assets and the performance, and then also the Gold price, should assist us in resuming even more attractive dividends in the future. Clearly, we have stalled some of the debt that we took on to fund Elikhulu, that’s still on the balance sheet, but as I said, we anticipate that number, in terms of the gearing levels, to come down quite dramatically in the year ahead.

Matthew Gordon: Any more plans for any more debt?

Cobus Loots: Well no, there’s no need for us to incur any more debt. Also, if you look at the sort of projects that we undertake now, one obviously looks at all the return metrics including internal rate of return, MPV etc, but payback is also very important for us, so how long does it take for us to get our money back and that’s where projects like Elikhulu where regionally, we were costing a payback of 4 years on a USD$130M odd, and at this Gold price, I actually expect the pay back to be sooner. So those are the sort of projects we like to do.

Matthew Gordon: Again, it’s just trying to understand the thinking of the management team here, because you’ve got options of paying it back in 4-years or paying it back quicker, paying dividends, you know, you have got the choice of what you do with that money. Some companies like to be completely debt-free as quickly as possible; others like to maintain some kind of leverage and utilise that spare cash elsewhere to develop and grow the business, where’s your head at?  

Cobus Loots: Well look, obviously, a mining company should not be over-geared and they should have a conservative level of debt. That’s really where I think we will end up in the next 6 months or so. It also doesn’t make sense for us to have no debt. In our view, it’s not efficient from a capital allocation perspective. We think that we can pay a significant, pretty much all of our debt in the next 12 to 18 months in resumed dividends so that one is not at the expense of the other.

Matthew Gordon: Okay. So dividends; they are still in the pipeline, your shareholders will still be receiving dividends as you continue to develop the business and grow the business – perfect. Can we talk about something else though? You did highlight them and I’ll give you credit for this; you don’t shirk or hide from this, you have talked about a couple of things: there have been some community issues which have affected productivity, and also, more recently, some power issues. I know mining is mining, and it is tough, but what has gone on there and will it reoccur?  

Cobus Loots: Yes, sure. I think we have demonstrated the ability to operate successfully in South Africa. We have had community unrest and that has affected, as you pointed out, the Barberton operations in the last 6 months. We had very serious power issues with ESCOM, our South African power and utilities, in December. On top of it, we also had probably the weakest December in terms of rainfall that I can recall for the last 20-years, so that will also have affected operations. So, you know, the bottom line is that one has to plan some level of disruption to your operations and you have to robust assets that can withstand these sorts of issues, and a management team that is proactive and can anticipate when they can and then deal accordingly.

So yes, South Africa gets quite a lot of bad press I think in terms of the operating environment, and a lot of it is justified, but as you said, most mining jurisdictions have their issues.

Matthew Gordon: They do, and like I say, I give you credit for not shirking away from it or ignoring it, but like I say, ESKOM for instance – what was the issue? Is it going to reoccur? Because I look at the, again, the information that you have provided, the prices have been going up and up, which affects your margins, but how do you engage with them? How do you have conversations that give you some sort of certainty about what the future looks like?

Cobus Loots: Well sure. ESKOM has been more of an issue at Evander, our underground business, and fortunately there, we have spare capacity so we can afford to turn off a mill for a couple of hours if there is what is termed, low-shedding: so where the grid is overloaded. So we do have that capacity but what I think also, the ESKOM situation is not going to become any easier overnight. We will continue to have power shortages in South Africa for at least the next 2-years. Barberton mines is less energy intensive so it is less affected. Elikhulu doesn’t use a lot of electricity so that is less affected. And fortunately, as I said, at Evander underground, we have some spare capacity so we can afford to reduce our underground consumption for a limited period. And recently, the Minister of Mines in South Africa has come out and said that they are in the process of deregulating the private power generation. At Evander, we are completing a Feasibility Study (FS) into our solar plant that will be able to look after pretty much all of Elikhulu during the daytime. And we expect that we will be able to, over time, expand that project also. So miners are being creative about finding solutions and I think that over the medium to longer-term, we will get those solutions implemented in a way that actually makes sense for shareholders.

Matthew Gordon: Interesting. You should talk to your neighbours over the road at Bushveld by the sounds of it.

Cobus Loots: Exactly.

Matthew Gordon: Okay. Well thanks for that update. It just sounds like business as usual for you. I appreciate you being quite direct about some of the issues that you miners face, but you are consistently hitting the numbers, or exceeding the numbers, despite those problems. So you always find a way. Do stay in touch and let us know how you get on. What are the next big things that we should be looking out for?

Cobus Loots: Well, we have our interim results now being released next week, on the 18th February and that will contain more detail on performance and what we expect for the remainder of the year. And yes, as I said, we are quite positive. We have laid a solid foundation, a good base to do well. So the Rand Gold price, is pretty much the highest it has ever been so that’s a good environment for us to operate in also.

Matthew Gordon: You see that continuing do you?

Cobus Loots: We sort of try focussing on those issues we can control, but it’s always nice to have tailwinds like the Gold price.

Matthew Gordon: Light a candle, for sure. Thanks again, speak real soon.

Cobus Loots: Thanks, Matthew. Speak soon.


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 (TSX: RNX)- Raise Up Your Mind, Hey, it’s Time To Shine (Transcript)

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

RNC Minerals was perhaps the turnaround story of 2019. Huet has steadied the ship, brought about a gold focus to the company and got RNC into production. A steady 8,000oz+ per month has changed the company and de-risked the operation, as the team look to move forward, get the share price up and probably restructure the CAD$32M of remaining debt. AISC steadily heading down. We expect to see it get below $1,000 later this year.

Despite a positive year on the production/revenue front, RNC has struggled to get the share price up. It sits at CAD$0.43, with a market cap of c.CAD$260M. Huet explained the market situation clearly: RNC’s 28% “option on nickel” at Dumont has been valued at zero, and he feels the company continues to be undervalued. We were curious as to Huet’s plans would be for 2020, but before you ask, he wasn’t prepared to talk about the royalty arrangement with Maverix Metals just yet as they are mid-discussion. He’s keeping his cards close to his chest. We do however expect to hear something by the end of Q1/20. However, it obvious to all the chess game that is afoot. The Maverix Royalty is a large 6% on Gold and 1.5% on Nickel. Forget the nickel for now. If we were RNC, we would do the bare minimum of mining at Beta Hunt. Why would you if the only company making money if Beta Hunt gets mined is Maverix? Beta Hunt must be 25-30% of Maverix income. But not if RNC reduces production, which, reading between the lines, seems to be what RNC is doing. The two need to agree, and agree quickly. Shareholders on both sides will benefit. Morgan Stanley, seem to have been pragmatic. Will Maverix be as pragmatic. Our interview with them, they talked that language.

Huet has been on a roadshow to both institutional and retail investors. RNC recently issued a 2020 guidance: 90-95,000oz per annum, excluding the often discussed coarse gold. This figure is also without taking into account an ore sorter, and possible plant engineering modifications to increase efficiency. Huet is running a tight ship, and we would expect these numbers to be almost guaranteed for 2020.

RNC will fund exploration out of cash flow. The debt is due in June, but can be delayed, or restructured on more favourable terms, given RNC’s current position in comparison to where it was 7 months ago. RNC will be looking at a c. CA$50M standby facility.

A gravity survey has revealed interesting anomalies at RNC’s two new exploration discoveries: Higginsville and Baloo. A recent high-density gravity survey has delineated a new geological structure at Higginsville: a 5km strike zone. The Paleo channel potential will be explored (these typically can result in slurry pumping to by-pass front end ore-sorting and crushing and go straight into the back-end of the plant). Potentially an additional transformative item. Long way to go though. Permitting at Baloo is reaching a more advanced stage.

There has been discussion about an ASX listing and roll-backs in the chat rooms and on social media, but Huet remains tight-lipped. RNC is getting more and more access to institutional shareholders, and that can only be a good thing.

They did what they said. There is a clear plan. Sit tight and watch this unfold.

Interview highlights:

  • Roadshow Experience and What They’re Doing it for
  • Release of Guidance: An Overview
  • Cash Position and Prioritising Spending
  • Options for Dealing with Debts and a Timeline for it
  • The Re-Negotiation of the Morgan Stanley Royalty: Plans for it
  • Building 24 months Worth of Ore
  • The Mill: A Good Purchase?
  • Lowering the AISC: What are They Doing?
  • RNC Minerals: A Potential Take-Over Target?
  • Specific Targets and Plan of Action for 1800km worth of Land
  • News on Dumont

Click here to watch the interview.


Paul Huet: Hey Matt, how are you?

Matthew Gordon:  Good. You have been on a roadshow.

Paul Huet: We have, we have been hitting up several places actually, 4 countries and 6 cities in the past couple of days in the last 2 weeks, so it has been very exciting.

We went to Canada first and then we went to the US, then Indaba, and finishing up in London. The purpose is really to just get out there and show people some of the changes we have done. You know, it has been 7 months now. I have been here for 7 months and we have managed to make a lot of changes: from shareholders to the board of directors, the executive team. We are now in production, we sustained about 8,000 oz per month for the first 6-months.. We are actually doing what we said we would do. We are keeping it simple and doing what we said we would do.  

Matthew Gordon: It is probably one of the turnaround stories of last year. You recently issued some guidance.

Paul Huet: 90,000 to 95,000 oz at 8,000 oz a month, it excludes our coarse Gold. And that’s something people should consider. It is our first year of total production and we are still fine tuning everything, if you want to call it that. We are still evaluating and assessing ore-sorters, that has certainly not gotten behind us. We are certainly evaluating engineering changes to the plant. We are looking at several things to upgrade, and how we can even increase throughputs, so there are opportunities there. But that range that we are putting in front of ourselves, it does exclude that coarse Gold.So don’t lose sight of that.

Matthew Gordon: You have also been producing cash.

You did raise a bit of cash to allow you to put things in place, but you are also still producing your positive cash flow. Can you talk to us about what are your priorities with regards to how you are going to spend that cash.

Paul Huet: As we announced, we ended the year with USD$35M in cash, so a huge, huge change. A huge shift. We used USD$3M of the USD$35M to pay down some of our debt, which was really important. That saved us almost USD$100,000 in the first quarter just in interest, so that’s important for us and for our shareholders.

We are going to spend USD$9M to USD$10M this year on Exploration this year. We have already started some of it. We have got a good detailed plan. We have just unlocked an area at Higginsville that has 1,800 Square kms.  We just announced the Fairplay open pit; that’s a brand-new area for is. It is 1km from our plant. We have pre-stripped that, we are actually starting to mine on that. That thing is only constrained by drilling. There’s no drilling around there. We did the original drilling here. So the initial grades from that pit looked to be as good as open pit at Baloo. We just got stage II permitted at Baloo. That second stage at Baloo was all drilling that we did ourselves as well. There were areas that we had discovered, that we discovered that geophysics had that gravity survey.

 What people have to remember is that this area hasn’t been explored in almost 2 decades. There has been some drilling; don’t get me wrong, but whenever there is a Royalty of 7% sitting on a project, that’s a huge burden for anybody so previous owners recognised that. Not a lot of people were willing to spend any money or effort in those areas, whereas after we had negotiated that Royalty, we’ve unlocked a huge jurisdiction.  We have opened up an area that was really gridlocked, it was landlocked for a long time under that Royalty. So, tremendous amount of upside for us to be drilling in those areas and that gravity survey just discovered a 5kms strike zone which is just north of our plant.

Matthew Gordon: I want to deal with the debt component. You have positive cash flowing, plus you have money some in the bank; USD$37M at the end of the year. You pay down USD$3M, saves you USD$100,000-ish per quarter, it was a lot of money. What was the balance off there between saying, let’s reduce that debt position or let’s get out there and drill?

Paul Huet: Yes sometimes. In our case, it made much more sense to pay off our debt. There’re often times that I’ve seen, even I’ve done actually, paid off debt with equity. We don’t want to do that to our shareholders in this case. We can repay our debt while we still have an aggressive drill campaign. We announced USD$10M, that’s the first USD$10M in this district in a very long time. That’s going to give us a lot of opportunity and our drill bit will drive our priorities. The next drilling will come from this. If we feel like we need more money for drilling, we will add money…

Matthew Gordon: What do you mean, you will add money?

Paul Huet: We will add money from our cashflow. Paying down our debt is really important. It is really something. We are looking at restructuring it as well.

Matthew Gordon: So let’s talk about the debt component. You have got your USD$37M, you have paid off USD$3M, you have got USD$34M left to pay. So most companies would look at that and say we can restructure this and pay a little bit less over a longer period of time, or we can pay it off or we can pay it down. What are the options that you are looking at for dealing with that debt? What’s the timeline?

Paul Huet: Yes, for us, our debt is due in June. We have an opportunity to extend that debt by 6 months, just by signing paperwork, or we have an opportunity to restructure that debt, which is something that we are strongly considering and something that we are working on. In fact, we have had a lot of interest from groups who I have worked with in the past who have serious interest in restructuring this debt at improved terms. Don’t be surprised if we pay down some more debt this quarter. It wouldn’t surprise me that we paid down some more. Everything has to be considered: as you talked about, we have to consider drilling, we have to consider everything and make sure we have that pipeline in front of ourselves and the amount of cash.

Matthew Gordon: Some companies would also look at things like standby facilities, because you mentioned something there that was quite an interesting point which people may have missed which was that you may be able to restructure your debt on better terms. Presumably, because the company is in a better financial position?

Paul Huet: And also, because we have had consistent, sustainable production. And another thing: a 2P reserve. That 2P reserve that we put out at Beta Hunt is very critical for lenders. So one of the things we are going to be doing is, when we restructure this debt, we will be looking at standby facilities.  I have had standby facilities in my life in my past, but putting together a USD$20M standby facility when you don’t need it, it’s the best way to get it. When you need it and your back’s up against the wall, you won’t get as good terms. For us, we will be looking at, potentially, a USD$50M facility where we take USD$30M and we restructure it. We have that. Whatever group comes with us comes across the finish line with us. Put in another USD$20M standby facility that we can use at our discretion, when it’s needed, that we can use for some consolidation, maybe for drilling. Whatever we need it for, it’s in place when we don’t need it.

Matthew Gordon: Yes, I think the truism in banking, when the sun is shining, the banks offer you umbrellas.

Paul Huet: Yes, exactly. We’ve all been through it.

Matthew Gordon: Can we just talk about Morgan Stanley? You renegotiated that Royalty with them. It has freed up this, this very large land package for you to go and Explore. What are your plans, because it is a big piece of land?

Paul Huet: Look, it’s a very large piece of land and we’ve actually started with our plan by the drilling from Fairplay. That was our number one priority.

Followed by the geophysics – the gravity study we did. We did not know that the gravity survey would unlock or show us that 5kms.

Matthew Gordon: What is a gravity survey, for the uninitiated?

Paul Huet: It’s a great Exploration tool for us. It’s an Exploration tool that allows us, targets us for drilling. That’s exactly what it does. It gives us some indications on where to drill. The thing that is exciting about this 5kms, from what we can see, and all of the historical information that we have, there are no drill holes in this thing. This thing just lit up in a gravity survey and there is not one drill hole in a structure that is quite similar to the structure that the mill was built for. The mill was built for the Trident mine. The Trident mine is just at the mill. That thing – we own it, that Trident mine is part of our land package now. Just north of it is where this 5kms strike is. And look, as a reminder; Beta Hunt is 4.5kms today, and Beta Hunt is constrained by land, not necessarily by geology.

Matthew Gordon: And you are going to throw how much money at that in 2020?

Paul Huet: We had other priorities that were much more advanced than this structure in 2020. And we are going to follow through with our plan.

But one thing I’m forcing our guys to do is follow through with our plan. This obviously changes things where we might require, we might introduce some holes into this, this year and change up this plan. Our goal has always been, from day 1 since I took over, to put 24 months of feed between Beta Hunt and Higginsville. We have stuck to that. We are going to stick to that and we had a different set of pipelines, Fairplay being one of them, the extension of Baloo being another one. So right now, we have the extension of Baloo that pushes us to the end of 2020 now. We’ve got Fairplay coming in. We will be drilling around Fairplay. There are other open pits that are more advanced, satellite targets that are more advanced than this unidentified 5kms strike. We haven’t even given it a name; it is so early – so you are right in saying that it is early stages.

Matthew Gordon: You have talked about getting 24-months of ore there to into the mill. That’s not something that exists today but you are building up towards this.

Paul Huet: That’s absolutely correct. And from both, so I am talking, about a series of open pits in front of us and from our Beta Hunt mine. The Beta Hunt mine is going to need some more waste development which we have planned this year. I think in dollars, top of my head, it’s about USD$6M in waste development. It’s all part of our budget. It’s all funded from the operations, right. It’s not coming out of treasury. In fact, treasury this year will continue to build up despite us having a very aggressive year in Exploration and waste development, some equipment purchases, some upgrades to the mill, looking at ore-sorters, we will continue to build up treasury.

Matthew Gordon: Do you keep Gold back on good months and then run it over into the next month if you need to, or does it all go into the mill straightaway?

Paul Huet: Yes. Our mine plan is what dictates it.

It’s not about hoarding the Gold, it’s about how we sequence the mine. It’s all about cross cuts during the retreat. Open pit: you end up mining where you are mining, so it’s all about our mine planning. We are trying to build up our mine plans to reflect what we have put out in the guidance. Our mine plans are a reflection of our guidance. We are doing our best to remain consistent. Consistency is good for us as well, right? It’s a lot better for us.

Matthew Gordon: And when you are having conversations about money?

Paul Huet: Yes.

Matthew Gordon: Have you had to spend any more money on the mill than you imagined? Do you still consider it to be a good purchase?

Paul Huet: Oh look, the mill was a steal. Hands down. I’ve had what, 13 mills approximately reported to me in the last two decades? You know, I built one almost from scratch, Esmeralda, it was this small thing that we had to almost rebuild. This thing here, this Higginsville plant, we have spent so far, probably about AUD$1.3M, AUD$1.4M on it.  A very, very small amount to make some major upgrades for ourselves and our mill has gone from a mill availability from about 86%, all the way up to about a 95%, and this is a real reflection on Graham and the team there. These guys are doing are doing PMs to the mill now, we are spending the right money on the mill. We are making sure everything gets properly treated in the plant and it is not neglected. The plant is not neglected. This is the artery and the heart and soul of our company. We’ve got two open pits and an underground mine feeding this plant and Doré coming out of it. We need to make sure it comes out on a weekly basis.

Matthew Gordon: And one of the reasons why you bought it was because you hoped you could reduce the AISC, I know you haven’t finished last year’s numbers and you are due to announce those towards the end of this quarter, but broadly, have you been able to do what you said, which was to drive the AISC down towards that $1,000 number.

Paul Huet: Yes. There’s no reason to doubt it’s not happening in 2020 and there’s no maybe – we will get there. We saw, when our first original numbers in the first half of the year were close to USD$1,300 per oz, Matt, AISC, Q3 was USD$1,183, so call it close to USD$1,200, so USD$100 reduction per oz. Q4 numbers aren’t out yet, finances are coming out soon, but that trend is currently continuing like we saw between the first half in Q3. So you will see, it’s certainly trending down again in Q4, as we expect it to. There’ll be no surprises, people will I think, we were happy, I think, once everything is finalised, we are not quite finalised. Things are trending in the right direction where they should be.

Matthew Gordon: So that says to me that you are going through this cost-cutting exercise across the organisation. I think you talked about Graham overhauling the operational side of things, and you have been elsewhere. Have you come across any major headaches that you have had to account for?

Paul Huet: No, no. Listen, this is mining, we are always going to have headaches, Matt, and there’s always surprises. The advantage we have between all our experiences, one way or another, we are going to overcome them. And because it is mining, sometimes you can drill and blast them and you can get through them. So we will go around it, above it, underneath it: we will get through the obstacles we have had to. There’s been nothing that’s been so bad that we didn’t anticipate it. We have had…we are very thorough in our risk register and we mitigate quite a few of the risks.

Matthew Gordon:  There have been a couple of reports about you guys being looked at as a takeover target.

Paul Huet: I think I would be very naïve to think that we are not in some people’s, or bankers’ slide decks. Anybody who is doing what we are doing and has a centralised jurisdiction, and unlocks so much value, I would be naïve to think that we are not going to be a take-up target. We’re not putting ourselves up for sale.

Matthew Gordon: That’s the next question.

Paul Huet: We are certainly not saying, ‘Hey look – we are up for sale.’ We believe we are going to drive value up for our shareholders and we give us another 6 months to a year, because we will create value in that share price for our shareholders. All we’ve got to do is to continue doing what we said we would do and continue to deliver.

Matthew Gordon: RNC has been looked at several over the last three to four years. Australian Gold miners, who are sitting on a lot of cash at the moment, because it’s been a good time for Australian Gold mines. Do you feel like RNC is a more of an attractive target should those conversations come round?

Paul Huet: There’s no doubt we are more of an attractive target. We have cash on our balance sheet now. We continue to reduce our debt. We are sustaining production consistently. There’s no doubt; we are much more attractive than we have ever been. We have, simply put, we have de-risked this thing.

Whereas, someone would have come in before and they would have said, ‘There’s so much risk in here: operationally, geology’. We have demonstrated through that 2P reserve, through renegotiation of the Royalty, through the consistent mill throughput, we have consistently de-risked this thing significantly.

Matthew Gordon: Can I just ask you about this 1,800 square kms of land package. Almost too hard to comprehend how big an area this is. But you’ve got lots of options in there. You have now got the availability of cash and you are producing free cashflow as well. Are you targeting any specific areas in there? And I ask this because you’ve got so many options elsewhere in the organisation. You’ve got to get focussed and you’ve got to help us understand what you think is important.

Paul Huet: Sure. So we have Baloo – we’ve just got the second permit to extend to Phase II that we talked about. We just did some recent drilling at Fairplay. We just did the pre-stripping; that’s very fresh and new.

If you look close to the plant, we have the Two Boys target there. We have the Poseidon South. We have the Graveyard, the Mitchell…Afratai, Challenger, and then more Paeleo channels. So look, on top of the 5kms, we have a series of areas that we are going to be targeting, and predominantly in 2020, we are going to be mining Baloo and Fairplay. plus the Beta Hunt, obviously.

You can see, and this is constrained too, so that 5kms strike that is directly North of us, will likely get holes in it. We have larger priorities. We have unlocked so much potential here.

Matthew Gordon: Everything is going great with the Gold side of the business. Dumont nickel. Any news?

Paul Huet: No update from the last one. We are still working alongside, with our partner, Waterton, to find the best strategy for us and for them. Look, the way I see it, for our RNC shareholders, we really have an option in Nickel. I firmly believe that. Nickel prices go up. I think it goes without saying, Matt, I think anyone will likely agree with me that presently, there’s no value in our share price on our Nickel asset. And that’s a positive thing. So whatever we can get done this year. Whatever synergies or strategy that we can come up with, with Waterton that makes sense, will create more value. There’s none right now so anything we can do will improve that share price.

We own 28%, Waterford own 72%. They are really driving the bus on this one. But the EV excitement is certainly not slowing down. Nickel had a really decent year in 2019, if it has a really decent year in 2020, there will be interest in our project. There’s no doubt about it.

Matthew Gordon: Thanks for coming through London and going out of your way to make time for us.


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.

Rio2 (TSX-V: RIO) – Take Me to the River, Dip Me in the Water (Transcript)

Rio2

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

We like Black’s honesty. The managements track record is good. They have made investors money. They have a problem with water but has a work around. 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 reaching 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

  • Share Price Decline: What Went Wrong?
  • Background and Business Plan: What Did They Set Out to Build?
  • Finding Value: Why, in a Gold Bull Market Situation, They Choose not to Expand?
  • Jurisdiction: Water, Power and Political Challenges
  • Money Spent on the Project to Date
  • Raising the Share Price: How Will They do it and Why Should You Invest?

Click here to watch the interview.


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.


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Serabi Gold (LSE: SRB, TSX: SBI) – You Broke The Bonds, And You Loosed The Chains (Transcript)

Serabi Gold - Palito

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

2019 was a good year for most gold companies, including Serabi Gold, who saw its share price treble. Now Serabi is looking to push on to achieve the Gold returns shareholders will demand.

Serabi’s debt to Sprott Lending Partnership, c. US$6.5M, and Equinox Gold Corp., US$12M, has been looking. Rather than raising equity to resolve the problem, Serabi Gold has opted for US$12M of convertible notes with existing shareholder Greenstone Resources, which will enable them to pay back Equinox. The remaining debt owed to Sprott will be settled from cash reserves. This wards off dilution for now, but if Greenstone decides to convert notes into shares rather than cash that would suggest the company has delivered on its production targets and the share price has bounded on further.

Serabi Gold will now look to push forward with the development of Coringa, which is geophysically and metallurgically similar to Palito, but with a higher gold grade of 8.34g/t. They will likely use their freed-up cash flow to bring Coringa through to production by Q1/21, with the target of a combined, cross-mine AISC of c.$950. Investors will want to see eventual production doubled.

Serabi will use the majority of the c. US$14M in the bank to develop Coringa, introduce an ore sorter at Palito and continue exploration at Sao Chico. Serabi Gold appears to be well set up to build on last year’s 40,000oz+ gold production figures. Let’s keep watch and see if they can deliver.

Interview highlights:

  • Press Release: $12M Convertible Loan
  • What is a Convertible Loan and What Terms Bind it?
  • Had They Looked into Equity Options Beforehand?
  • Greenstone Group’s Support
  • Year of Delivering: What Will They Do With the Money?

Watch the interview here.


Matthew Gordon: You have a press release out this morning: USD$12m convertible note. Why have you done that?

Mike Hodgson: I think everyone will know, Serabi investors and people who have been following us, that we have the Coringa project which we have been advancing, making good permitting progress. It’s a very similar deposit to our Palito operation, so we see it as quick organic growth. We are working through the permitting process and have a license to start the underground operation and that is something that we are eager to do. One outstanding condition on that has been that we have one final payment to make to the company we purchased the asset from, called Equinox. They were called Anfield in the past, but they have since become Equinox, and we owe them USD$12m. Whilst we are eager to start our underground operation at Coringa, it is something that we wouldn’t be comfortable doing until we have fully owned the asset. So the payment will be used to settle the final payment to Equinox which is going to be happening, all being well, at the end of February 2020.

Matthew Gordon: And you also have debt with Sprott outstanding. Will you be tackling that or is that something you can roll over?

Mike Hodgson: The good thing about this USD$12m convertible loan is that it frees us up to use our own cash. We have been running up our cash position quite nicely during 2019. We opened the year with USD$8m and we ended the year with over USD$14m. We have been building up cash. The whole idea, the original intention was to build up that cash as much as possible and to actually make the Equinox payment, but instead, we will use that cash to pay off Sprott, and to actually end that debt as well, which is sitting at a little over USD$6.5m. We will pay that out of cash flow; this is what this convertible loan allows us to do. It liberates our cash to do that, and continue with our various work programs at Palito and Sao Chico. We are actually drilling a lot to try and increase the Resources and to fund that underground development which we are going to do at Coringa from Q2 onwards in this coming year.

Matthew Gordon: What is a convertible?

Mike Hodgson: Okay, well, a convertible loan is essentially money where a lender puts money to the company on a condition over a term, in this case, 16-months, they then have the right to take shares, at a pre-agreed price, the exercised price, which will be set at the beginning of the loan. In other words, in the next few days, they have the right to actually acquire those shares at a fixed price, at the end of the term. They may want it to be converted, so in this case, it would be fairly close to the market price, but they could choose to actually get paid back in cash instead. The company also needs to demonstrate that they can pay the money back in cash as well. At 16-months, cashflow is actually strong enough to do that, but we would obviously expect the conversion with Greenstone to take it in shares.

Matthew Gordon: It is at their election; if your shares are moving up, or if they feel your shares will probably move up, they will elect to take shares. Or they could just treat it as debt and you repay them at the end of the term if you have the cash, or perhaps you refinance it if you didn’t have the cash.

Mike Hodgson: That’s correct.

Matthew Gordon: It is an interesting device which some Juniors use. Did you look at the option of equity, because I imagine that last year, or towards the end of last year, it was a tricky period for equities? I think most companies were asking for a 10% to 15% discount. Did you have those conversations?

Mike Hodgson: We did. Last year started, production-wise, we had a terrific year and as I just said, we generated cash; we generated USD$6m to USD$7m during the year, which was a great effort. We had a poor share performance in Q2/19 when we had two shareholders: one an institution in London, and one a private lender, invested some time ago, both selling their positions and that really took our share price through an all-time low for the last few years of £0.23p. So, at that point, equity was absolutely out of the question.

Despite that, we did see a price recovery during the year. Serabi, like many Juniors has suffered over the year, with liquidity – we did actually find over the second half, on this Gold run on H2/19 – we saw a lot of investors come into the stock and that really drove the price up. For once, in quite a while, we had some real liquidity, share price went back up to about to £0.70p/80p range, which certainly brought the prospect of equity into question. But having investigated it, speaking to the brokers, the board, major shareholders generally, it was still expensive money. Most of the equity deals kicking around wanted 20% discount to the market, so it was still going to be quite an expensive way of doing this.

So, Greenstone; they are fairly new investors with us. They have been very supportive. They offered us a convertible loan, so it seemed favourable, the cheapest money and the best option to take.

Matthew Gordon: Quite an endorsement by Greenstone. For people who don’t know who Greenstone is, they are a geologically technical fund in London. This takes their position to 37.8% potentially, or something like it.

Mike Hodgson: Yes.

Matthew Gordon: So quite an endorsement from them. You must be pleased to have them onboard and supporting you?

MIKE HODGSON: Absolutely. They took a big role in our company in that we have regular technical discussions. We have had a lot of support. They have got a good engine room; people who we can call on. They have obviously got a huge reach in terms of things that the company can be doing as well. They are super helpful and it is good to have a shareholder of that type of calibre in our stock.

Matthew Gordon: Smart money with deep pockets. Very nice. Can we talk about what you are actually going to do with the money? You have talked in the past about obviously getting into production. I also want to look at what you’ve been doing at Palito and Sao Chico because you have talked about exploration in the past, so what is happening this year with this new restructured Serabi Gold company?

Mike Hodgson: Yes. Well we are really, really busy at the moment. We had a great year. We broke 40,000oz for the first time ever, which was a huge achievement. We ended a quarter, Q4/19 with another 10,000oz which was really pleasing. So that means that 5 out of our last 6 quarters have broken 10,000oz, so we really are in regime, established at 40,000oz. Very steady – which is not something you usually see with a small producer. It is very consistent. The grades are very solid. Production and throughputs are going well at the mines. We still remain a plant-constrained operation; which I will come onto in a moment. We are doing something about that, but it was still very, very pleasing. We expect this year to be more of the same with the good news that we have our ore-sorter, which is being commissioned as I speak. I am actually going out very quickly next week, to site to see this machine working. We are commissioning it right now. We have got the manufacturer at site. We are calibrating it.

Now, the effect of this ore-sorter is that, the most diluted ore that we have got, which is generally the Palito development ore, and some of the lower-grade Stope ore, we can pass this material through this ore sorter, which essentially removes waste. Either by optical; by colour, or by density. Now, we are a plant-constrained operation. Our restriction is the milling section which is around 550tpd. If the grade is sitting normally at about 7g/t or 8g/t, that means that at the end of the day, the maximum output is around 40,000oz.

The ore sorter is going to sort of screen out some of that waste rock which is currently entering the process plant and will actually liberate some space so we can actually add more higher-grade ore and get that plant processing the same volume but of a slightly higher-grade. So if the grade can go up, from say 8g/t to 10g/t, we can squeeze that plant to get something like 45,000oz to 46,000oz out of it this year.

That, obviously, might not sound a lot but it is 12.5% to 15% more. It goes straight to the bottom-line – literally. The additional mining cost is there, but the additional processing cost is not. So it makes a huge amount of sense. So that is going to be a great plus in the actual operation.

At Sao Chico, which is our satellite ore body, we feel that that is probably the place where the extra ore production, mine production, will come from, to take up the slack that I have just talked about; add these extra ounces of higher-grade ore. And we are drilling there at the moment and have been drilling for around 2-months now and that will continue for the next 3 or 4-months. We are doing step-out drilling there. It is going very well. We are just literally drilling extensions to the current mine limits. If you can imagine an ore body – it is open to the East, it is open to the West, and open at depth, we are doing underground drilling with a contractor. Doing deep underground diamond drilling, to test the ore body at depth. We will be doing the same on strike at the surface with the contractor as well.  So that aggressive drill program is going to go on for the rest of…until Q2/20, with a view of hopefully drilling a new Resource update at Chico at the end of Q2/Q3. But most importantly, it is going to actually allow us to run our mine plan a bit longer. That’s the key there.

We also have at Sao Chico, outside the mine limits, but in our exploration licensed areas, some really exciting geophysics anomalies which we actually discovered back in 2018. We have finally got a drill rig in those as well so we are actually drilling those at the moment, we are only into our second hole. The results of which will be coming out in the next 2-months. So we are going to see a steady stream of drill results, coming particularly from Sao Chico, the mine itself, the step-out drilling, and drilling anomalies during the first half of this year.

So all of this is being funded out of our cash flow. We ended the year with USD$40m cash in the bank. We are going to pay USD$6.5m off to Sprott at the end of next month, and the rest of the money will be used, along with contributing cashflows we continue that exploration program. And finally, as obviously, and the real reason we are doing the convertible loan, is the work as well at Coringa.   

We have the mining license. Coringa, our new asset which we are going to bring on stream in the next 18-months. We are making great progress on the permitting.  We are very close to getting the first license, the most difficult license to get which is called the Preliminary License. That is conditional upon a public hearing which we are going to have. The date has now been set; it’s on 6th February. That’s when all of the stakeholders go to a public meeting which is in the region. It is important that it is in the region because it is in the town where Serabi is already one of the biggest employers and therefore, we are a big fish in a small pond. We have great local support. One really important note is that on December 6th, we actually got a sign-off from FUNAI – the Federal Agency for indigenous communities which these days, one can imagine in the Amazon, that is a very important group of people, which you do really need their support. They actually signed off with full support for the project. There will be no negative impact for them, in fact, positives, so that was a tremendous piece of news for us.  Which means that we will go into that public hearing well placed, albeit the public hearing will go well and we will get the preliminary license on the back of that.

That is the hardest license and where you are going to get stopped. You are going to get stumbling blocks but we feel pretty confident. We have made the project pretty water-tight. We have got no tailings there anymore. All of the environmental impact studies etc in our plan will be to not use tailings and dry-stack tailings, again, it is as good as it can be so we feel very confident on the back of that meeting on February 6th, we will have positive news.

Just to finish on that point, we already do have the license to start the underground mine. We are going to get that underway as soon as possible. It is important to demonstrate that we are a company that is really committed to the project in the region. Getting it started, putting jobs in the local community at the earliest stage and getting that all-important geological information for lenders and equity down the line. However, we finally fund the project, at the back end of 2021, we want to advance the project and get more confidence on the asset itself.

We want to know our AISC. We have actually managed about USD$1,050 for the year in 2019 with our production, and Coringa is going to bring in an additional 35,000oz to 40,000oz. Similar cost, but whilst there won’t be direct operational synergy, as they is 200kms apart, there will obviously be maintenance synergies, management synergies, some shared facilities like assay facilities and we are trying to locate some of those facilities between Palito and Sau Chico and in a city called Nova Polesa, which basically sits equidistant between the two assets. It is a town of about 40,000 people. There are a lot of positives there and that, I think those extra ounces will come in low-$900s so overall, we will be an 80,000oz producer with around an AISC of USD$950 as opposed to USD$1,050 today. So, with today’s Gold prices and today’s exchange rates; that’s a pretty nice place to be for a company of our size.

Matthew Gordon: Last year your share price trebled. You finished with a lot of cash in the bank. You are re-structuring. Trying to give yourself a good start to the year. What we need to see from you is delivery of all of these things; getting into production, doubling your production with the addition of Coringa, so it is a case of delivering and doing what you say this year, isn’t it, for you?

Mike Hodgson: It is, but it is not something we haven’t done before; at the end of the day, it is repetition of Palito so we are not leaving our comfort zone, we are just doing the same again.

Matthew Gordon: Step and repeat: cookie cutter approach. Mike, thanks for that update. We will stay in touch and do let us know how you get on with that Preliminary Licence. It sounds like a big step for you.


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.

Margaux Resources (TSX-V: MRL) – 1Moz Maiden Gold Resource + 600kt Tailings @+1g/t (Transcript)

We caught up with with Tyler Rice, President and CEO of Margaux Resources , as well as comments from Linda Caron, VP of Exploration, Kaesy Gladwin, Senior Geologist and Scott Zelligan, a Consultant who worked on the historic resource update.

This is probably one of our favourite small mining projects. It’s a gold bulk tonnage play with some high-grade upside and a lot of historic drill data. We’ve seen these work but the management will need to be cognisant of how to develop it without large dilatory financings. We typically don’t spend much time looking at this end of the market but there is the sheer scale here. The G&A is low and the team is experienced in Orogenic Gold systems. This opportunity is something that we are interested in. It has been described as the next Barkerville Gold and an early stage Osisko. Nice parallels and the early signs are good, but still a lot of work to do – one to watch for sure as it is still cheap.

Also, their tailings project (600,000t @ 1.2g/t) could potentially net them $4M-$5M cash if they outsource the processing. Tyler indicates that they are evaluating this but do not expect it to happen in the next 12 months. The recent Maiden Resource of +1Moz puts them on a firm footing but what next?

Interview Highlights:

  • Recent News: Funding and Announcing The Maiden Resource
  • Company Financials: What is Their Cash Position and What Are They Going to Do With The Money?
  • Gold Market Conditions
  • Tailings Project: When Are They Moving it Forwards?
  • The Expert’s View: Geologists Explain Their Excitement Over the Projects

Click here to watch the interview.


Matthew Gordon: It’s been a while since we spoke. I wanted to catch up and see how things are going. This is one of our favourite smaller exploration stories in Canada. I notice a couple of things had come up. Obviously, you’ve updated the historic resource like you said you would. And also, there’s this raise. Can you tell us a little bit about what’s going on? Seems to be quite busy.

Tyler Rice: Very busy, indeed. We’re very excited about the recent announcement with regards to our 1Moz Resource, at 8.7g/t cut off, which results in an average rate of 1.43g/t. In addition to that, we recently announced the financing of $750,000, which will go towards our winter season of interpreting our field season data that was obtained by Kaesy and Linda.

Matthew Gordon: We’ve arranged to speak with Kaesy and Linda later. We’re going to catch up with them and find out what’s been going on in the field. What else is the money going to be used for? Obviously looking at some of the samples that you’ve picked up in the summer which is great. What else are you doing in terms of driving that share price? Since we last spoke, you were at $0.05 cents. You’re now up to $0.09 cents. Things are moving the right direction.

Tyler Rice: In this bull run that we’re seeing for gold and expected continued run for the price of gold, having two major properties in a safe jurisdiction in British Columbia, Canada; One being in the south at the Sheep Creek and one being in the North at the Cassiar property, which have both been identified by Dr.Murray Alan’s report through BC Geoscience as comparable to Barkerville, from a geological plumbing perspective. Most recently, we focused our field season up at the Cassiar property, which is 60,000 hectares of land. We inherited a substantial amount of data and our field crews went through the data. They went out to the field. And not only did they look at the work that was done previously, they expanded the thinking of lower-grade, bulk tonnage type deposits within the past great high-grade veins. And so, Linda and Kaesy will speak directly to that. And the excitement from our geos is second to none.

Matthew Gordon: I’m looking forward to that conversation. We spoke with Steve Letwin a couple of months ago. He was really excited about what you’ve got.  He’s really excited about what’s going on there. He compared you guys to early stage at Osisko. That’s kind of high praise and which is why we’re following this story. Can I ask about market conditions, obviously last couple of months, gold has moved. I think that’s clearly going to have an impact for gold producers. Has it has done much for you guys as junior explorers?

Tyler Rice: Some of the sentiment that has come out of Beavercreek recently is that the momentum that we’ve seen for the run up of the majors hasn’t quite hit the junior sector yet. And so, we are in a right position with the announcement of our Resource to get consumed by that vacuum that’s going to be coming down the pipe as the communication of the successes in the gold space contribute in the mainstream media .And with majors calling for $2,000 gold and beyond there’s going to be that vacuum that we’re going to get sucked up into.

Matthew Gordon: You’ve kind of got to work out where you fit in the cycle. Are you going to hit this gold cycle or are you preparing yourself for the next gold cycle? And I guess your data analysis will tell you that. There was one project which I was really excited about when we spoke last, which was this tailings project. You had something like 600,000 tons of tailings. And I think previous data suggested it was circa 1g/t or just over a gram. Have you managed to move that forward any or has that not been a focus for you?

Tyler Rice: For the field season this year that wasn’t a primary focus. We continue to evaluate that as a near-term cash flow opportunity. And that’s going to be part of our winter work from a permitting perspective to evaluate that launch in the next couple of years.

Matthew Gordon: That’s kind of an interesting strategy if you think about the amount of money that’s sitting there on the surface, ready to go. What are the things the needs a look at to make that decision? I appreciate you’ve got to fit it in around available money that you’ve got today to be able to do that, finding strategic partners to be able to maybe do that and working out what the plan is, but it seems to be a lot of money to be left on the ground.

Tyler Rice: But relative to proving up a 43-101 compliant Resource of 1Moz which definitely migrates us into a new category. That was our primary focus. And there is further associated low-hanging fruit around that that will position us for a bigger picture opportunity as we see this rising gold price. We continue to work on that initiative and the focus there is looking at the recoverability of that historically processed material.

Matthew Gordon: When do we expect to hear some news about how you’re going to move that forward?

Tyler Rice: Over this winter.

Matthew Gordon: And then I guess with 60,000 hectares to go and explore, there is this need to maybe do a second… I know you’re doing a financing now, but you’re going to have to go back out to market at some point, presumably next year, at some point after the winter analysis. Any sort of sense of how much money you think you’re going to need to raise for that?

Tyler Rice: We haven’t finalized the budget for next season because we’ve gotten so many new opportunities and targets that have been identified from this field season. As we get the results back from the chip sampling, soil samples, other field work that’s been conducted. Then we can articulate the drill program for next season.

Matthew Gordon: I managed to catch Linda briefly on a call. She seems very, very excited about what’s going on up there. New discoveries every day. Thanks very much for that update. Keep in touch with us. We’re keen to see how this goes. You’re one of the smaller companies that we look at, but a very exciting story. And like I say you’re delivering for shareholders. You’ve got to keep doing that.

Tyler Rice: Having a million-ounce resource in a bull market, having strong supporters such as Steve Letwin, who will be participating in this financing and having a Resource up North at the Cassiar property that has so much infrastructure. One of the new discoveries is 30 meters from our camp, which means it’s 30m off Highway 37. Our field crews literally walk to that location from our office and the opportunity is so great.

Linda Caron: Bottom line, I would say this is an outstanding potential, huge upside potential. The thing that sticks with me most is the size and the strength of the gold system there. Literally 15km over one mountain range, through the valley, up another mountain range. And you’re still in the same mineralizing system. Not that it’s mineralizing absolutely everywhere in that 15km, but you can see that you’re still part of that same system.

Kaesy Gladwin: We’re not just looking at the gold veins. That’s a nice little upgrade. We want to see a big system. It’s going to have lower grades, but it’s going to be more exciting because it’s bigger and it’s shallow. And it’s got these exciting quartz veins that have gold in them all through. But that’s an upgrade. That’s a sweetener.

Scott Zelligan: There’s a really good system there. And they have a ton of data that’s in pretty good shape. There’s a bit of work to kind of organize it all.

Kaesy Gladwin: There’s been a lot of operators. They’ve been taking a different approach. They had a different focus. They did some great work. But to have one company holding the entire property, as Margot does, really opens things up to look at a regional scale and say, OK, we’ve got these high-grade veins. We’ve got these smaller targets, these tight, confined things. But how does the system as a whole fit in? Because you’re looking at such a large area, you’re talking about 15km or 16km, much of the area has not been examined for a bulk tonnage targets. And I think this is a huge opportunity. When I started looking at the data, I thought this is something I’d like to really get into.

Linda Caron: There’s a lot of value in that data. The Taurus area is in the valley, not a lot of outcrop. So back in the mid-90s, they did IP. 25 years have passed since that that work was done. It was really good quality data, but the processing techniques have changed. So, we just took three lines of data right over the Taurus zone and we had that digitized and re processed. And within those three lines, we can see new targets that look just like the Taurus signature that don’t have a drill. So that’s what the old data does for us. It’s just generating new places for us to look.

Kaesy Gladwin: What you see in the resource model or in the mine maps or in the surface outcrops is all the same story. It’s a high-grade vein and that’s got alteration that’s very visible, very standardized across all these properties, so previously differently held properties. It’s easy to recognize the alteration, it’s easy to follow it and it’s easy to pick up pieces that are high-grade. Of course, those are the ones we get excited about. I know talked-about visible gold before. That’s a wonderful thing to see. But in terms of a bulk tonnage model, you really have to incorporate those at the margins of the veins. And in a lot of cases, historically, those areas weren’t even sampled because it’s not the focus. It wasn’t the mandate at the time.

Scott Zelligan: It’s a huge system. So, there’s a lot that hasn’t been explored. So, on top of the existing resources that are hopefully easy to exploit, there’s a lot of potential for new stuff.

Linda Caron: One of the really interesting targets is called Wings Canyon. I’m not exaggerating. It’s about 500m from the east side of the tourist deposit. You walk across to this zone, you don’t cross a single outcrop. There’s not a drill hole in that 500m zone. You get to the edge of this canyon and as far as you can see, east, west, up, down in all directions is alteration and veining. And there is no drilling between that and the Taurus zone. So, I think the potential for expansion for new areas, for new discoveries is really very, very good.

Kaesy Gladwin: This is a really great opportunity. The access on the property is really good. There’s a lot of historic roads.

Scott Zelligan: All the trails, you can get everything by the truck. You don’t have to use a helicopter or anything expensive to mobilize. Once you get to extraction, build any roads or anything.

Kaesy Gladwin: It’s not like you’re clinging to the side of a mountain slope or anything like that. You can move things and you can get your fuel cheaply. You can get your personnel to site. You can get your samples in and out and your equipment moved. And that’s exciting as far as controlling costs and also being able to test more targets.

Linda Carron: Table Mountain, half of the project, they never even looked at the bulk tonnage possibilities. All they were doing was following high-grade veins. So, there’s 2,000 drill holes on Table Mountain. We’ve got all the logs, we’ve got all the data in the database. Mostly they didn’t sample what looked like low-grade and we’ve got that drill core. We can assess some of these areas very cheaply. We don’t have to drill a new hole. We just have to go to a hole that’s already been drilled and sampled.

Kaesy Gladwin: Everything holds together really well, both geologically and in terms of the database. It’s a really well compiled project that we’re excited to take. I’m excited. We’re all excited to take it to the next level.


Company website: https://margauxresources.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. We provide paid for consultancy services for Margaux Resources. 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.

Serabi Gold (LSE: SRB, TSX: SBI) – Steady Growth for Shareholders. At Last. (Transcript)

Having flatlined for 4 years, Serabi Gold are looking to double their production and get to 80,000oz by getting their recent acquisition to market. High grade selective mining. It’s an old story which is looking to getting going again and like most junior Gold miners for the last 4-5 years, the only thing holding them back was access to money. They have had their head down focusing on producing at 40,000oz at a steady state for the last several years. That is not an exciting level. Most small institutional funders are looking for 100,000oz per annum. So what has Serabi done to change things and make this story relevant again for investors? We get the back story and find out how they plan to sweat their current assets and more importantly how they intend to fund it.

With Gold above $1,500 they are finally making a reasonable margin, even for an underground operator. We find out how they have structured their debt and what happens next. What do you think of their plan?

Retail investors have started to get interested again. And a couple industry strategic players involved. It feels like a new story as shares have started moving in the right direction. That said what we like is that they appear to be sticking to what they know and are targeting growth from very similar assets. Existing greenfield and brownfield also look promising.

A very open and confident pitch by the CEO. They have always had a plan, and now with the cash and cash flow and they seem to know how to deliver it. We follow with great interest.

Interview Highlights:

  • Overview of The Company
  • Team Experience: Have They Got What it Takes?
  • Share Price and Shareholders
  • Company Strategy and Assets: How Are The Projects Coming Along?
  • Update on Coringa and M&A Plans
  • Market Conditions: How Will Free Cashflow Affect Their Chances?

Click here to watch the interview.


Matthew Gordon: Let’s kick off for the one-minute summary for people who haven’t heard the story before.

Mike Hodgson: 40,000 ounces, high-grade gold production in Northern Brazil. Para state. It’s a big artisanal gold field. We are the first operator in that part of the world. We’ve got great local relationships. We’ve actually put a mine into production. It’s taken a while. The company did it many years ago. The mine actually closed. We actually started it up as brownfield site we’re mining high-grade gold, 8g/t. Which really, I think sets us apart from the rest. People have got so used to 1g/t, 2g/t. We are 8g/t. We are underground high-grade, selective mining. And we’ve acquired about 18 months ago the Coringa asset, which is essentially a carbon copy of our current Polito operation. We’re going to put Coringa to production, make it 80,000 ounces. We’re growing organically, but certainly in a very controlled way.

Matthew Gordon: I’m interested in this story, because you guys have been in South America for a while. I’d love to understand a little bit about the team’s experience in mining in South America. What’s everyone done?

Mike Hodgson: Brazil is a country that probably is very dominated by large enormous surface deposits. I won’t pretend to say it’s been easy. We’ve actually had to address the fact that there aren’t very many small underground mines in Brazil. Therefore, there’s a people skill shortage. I suppose we’ve cheated a little bit. We actually are next door to Peru and Bolivia and we’ve got a very key people that come from there. I was the COO of Ovando Minerals in Bolivia before this job. I’ve spent much of my career working in the Cornish Tin Mines. So I’m very specialized in small underground mines and I worked for TVX before on a small underground mine. I can’t escape it, but clearly, I’m probably moderately successful at it. So we built a team, which involved key management in the mine, which came from Bolivia. And we brought over a Peruvian contractor to help us with the selective mining. Our ore body at Polito and the ore body that will be developed and put into production at Coringa, are high-grade subvertical narrow veins. Quality ounces is what it’s all about. Controlling dilution is what it’s all about.

Matthew Gordon: Apart from yourself, who on the team experience has that level of experience?

Mike Hodgson: Well, on the board itself is a gentleman called Eduardo Rosselot, an older colleague of mine. A mining engineer, a Chilanian guy. He’s been very important in terms of actually helping us with our funding. And the rest of the team in Brazil, we’ve got key Bolivian mine management. The Mine Superintendent is Bolivian and all the technical team are Bolivian. The key to our success is really this team of mining expertise and we have actually boots on the ground. That works very well. The Peruvian contractor we’ve now actually nationalized. They are now all Brazilian paid and on the Brazilian payroll. It’s a very important point because, there’s no real problem in terms of these people working in Brazil language wise, which certainly was something which concerned us at the very beginning. But just going back a step, probably people may or may not know that Serabi did put Polito in production 2003. It started probably the correct way. But back in the 2000s in London, where company originally listed, there was, let’s say a lot of people in the stock, who perhaps shouldn’t have been in the stock. They did really understand with junior mining. And I think the company did two things. 1. It chase scale to try to meet shareholder expectation. 2. It also changed the mining method because it was very difficult to find the right people for the job. So when we actually restarted this mine back in 2012/13, we got the right team in and the formula for success has been the mining. My saying always is ‘grade pays, toness cost’.

Matthew Gordon: You raise interesting point. There have been, and possibly still are, some people have been in this a long time, long suffering. The share price has been flat for a couple of years, but it’s recently picked up again. You must be quite pleased?

Mike Hodgson: We’re delighted. A little bit of brief history on that. It comes back to some of the people that I’ve been around with, like Eduardo Rousselot one of our Chilean directors. He was really instrumental back in 2012 when we want to reopen this mine. The markets were terrible. There was no money out there for exploration. There was no money for resource growth. There was only money for cash flow. And it was hard to find. Eduardo introduced us to the Fratelli Group, one of our biggest shareholders. These guys put money in at risk where nobody else would. And they backed us.

Matthew Gordon: And they’re still there?

Mike Hodgson: They’re still there. A big shareholder. They basically went through 50% because they did want trading freedom. But frankly, there was no one else coming in any way. So that’s where they were. We reopened the mine very successfully, got up to 40,000 ounces pretty quickly, were we’ve now been for about 3 years. They underwrote the entire financing, took all the risk. The problem with that was our stock was incredibly tightly held. We had no retail.

Matthew Gordon: Not no retail. Not enough retail.

Mike Hodgson: Very little retail. There’s no liquidity. Everything was great about our company except the capital structure in a way. And we thought, well, we’ll fix that.

Matthew Gordon: What have you done about that, because I note Greenstone are now in there.

Mike Hodgson: There were ticking along quite nicely, doing 40,000 ounces. Operationally terrific. Corporately still with some problems. But back in 2017, we actually acquired the Coringa asset. Now the Coringa asset was from a company called Anfield, which has now been rolled into Equinox, one of Ross Beaty’s companies. Before that, it was actually in the hands of a company called Magellan. And we’ve been trying to buy this asset for a long time, because it’s a carbon copy of Polito. We’ve been mining Palito for a number of years. We know we’ve got all the relations in the region, we’ve got the methodology, the formula…

Matthew Gordon: Before we get into the project, because I do want to come on and cover that. I just want to stay with the shareholder component and what the thinking is.

Mike Hodgson: The buying of Coringa actually was a catalyst to do another capital raise. We bought Coringa for $22M and we funded $5M out of cash flow, but then we obviously got to find another $5M and then the final payment. $22M in total. We did a capital raise in March 2018. And that point Greenstone came on board. And River & Mercantile in London.

Matthew Gordon: Just explain to people don’t know Greenstone, because they are pretty well known in the industry…

Mike Hodgson: Greenstone are a private equity fund, London based, they’re invested in probably 10 or so stories. Pretty much a multi-commodity.

Matthew Gordon: A very technical team.

Mike Hodgson: They whey work with us very well. They obviously liked Clive and myself for a long time. They’ve been trying to get into Serabi for a long time. And they’ve been looking for the opportunity and acquiring Coringa was the opportunity for them to come in.

Matthew Gordon: They know what they like. And they are very selective. It’s a very strong team.

Mike Hodgson: They came in around that financing in April 2008. A group called City Financial came in. And also we had a Swiss family office that was still actually in the story. Now this year, obviously, we know the City Financial ran into some problems. And the Swiss Family Office also wanted to liquidate their position, which at the time wasn’t welcome news. So, 6% of our stock was just basically dumped on the market in the Spring of this year. And our price went £0.40 to £0.23. And we thought that was a bit of a nightmare. Turned out to be an absolute blessing in disguise, because that stock just got picked up by retail guys. So, for once, and you’ve seen our graph of our liquidity, it’s amazing. We’ve just flatlined for about 4 years, doing all the right things, but not getting any love. No appreciation. And then all of sudden, retail guys get a hold of it. We’ve gone from like 9% retail in London to probably 16%-17%. And it’s happy days.

Matthew Gordon: It helps. It is really important for new people coming in to look at the corporate structure of a business before they invest. We’ve talked in the past about the paralysis that can come with too much institutional investors. Either one individual or multiple institutions who sit and hold, and don’t trade.

Mike Hodgson: With Greenstone, in that financing in 2018 didn’t really do a lot for liquidity. I liked this expression, ‘it gave us an amount of democracy at least’.

Matthew Gordon: What does that mean?

Mike Hodgson: These days, I don’t know. At least we had two big shareholders on the Board now. So there was a natural balance now. We got three shareholders now over 10%. And two of them sit on the Board. So there was a bit more democracy there. Fratelli came down from 52% to 32%. So that was good. That raise didn’t bring in liquidity really. But obviously, the selling of this stock in the summer helped.

Matthew Gordon: So you now recognise the importance of retail, family office and HNWIs?

Mike Hodgson: We have tried so hard to get retail into this company. It’s just been institutions coming in. We’ve only done two raises.

Matthew Gordon: So now you got a better retail in there. I want to spend some time with you and understand what’s going on in terms of the business plan, the strategy, how you’re going to deliver it, where you’re going and who’s going to actually deliver that? So describe if you can, what is the plan? We know where you’ve come from, you’ve done a great job describing that. So today you’ve got a couple of assets. So you got to deliver those.

Mike Hodgson: Technically, on their current operation, Polito. Basically is one plant, which is plant-constrained, which is actually pretty unusual these days. Because most companies of mine-constrained. Now, the good thing about being plant-constrained is it brings discipline. You’re always treating it with the highest-grade possible.

Matthew Gordon: Just be clear to people what you mean by that.

Mike Hodgson: Well, grade is king. We’ve now had a head grade around 8g/t for ever. So that’s what we work with. And being plant-constrained means we’re not just throwing tonnes at the plant. We’re actually throwing quality ounces at the plant. That’s the important thing. Palito is in a very steady state of production. Two ore bodies feeding a central plant. 500t per day between 7-8g/t. That’s what we do. And we’re kind of limited at the moment. We don’t really want to expand the plant, because our ore bodies, as you can see from the presentation, they are high-grade, narrow veins. So all our business is to actually mine these veins as well as we possibly can, minimizing dilution as much as we can, to get quality out of the mine. And then basically through the plant. Inevitably even doing this where the best possible way we can, we still get some dilution into the into the system. Over the last 18 months we’ve actually been testing ‘ore sorting’. I know this is a big buzzword these days. I’ve just come back from Beaver Creek and it is all the rage. It won’t solve all our problems, but certainly help a lot.

Matthew Gordon: What is that going to help with?

Mike Hodgson: There’s ores and waste. The gold is inside the sulfides and outside that is just pure waste granite. The ore sorter is actually a waste remover. It sorts on either color, or on density. The difference is really, really good. The intention is to pass our lower-grade material through the ore sorter. And it’ll screen out waste. First of all, it’ll take waste out of the system. That will save us about $1M a year. But more importantly, it actually liberates about 20% of space in the plant. We can actually add more high-grade ore and make a little plant go from 40,000 ounces per year to 50,000.

Matthew Gordon: And very low cost presumably.

Virtually no cost. That almost goes straight to the bottom line. From today we’re 40,000-ounce operation probably making about $4M-$5M a year.  It’s positive cash flow. We put in the ore sorter.

Matthew Gordon: It doesn’t cost a lot. Comes out of cash flow.

Mike Hodgson: $1M

Matthew Gordon: So no dilution. And improve efficiency and productivity.

Mike Hodgson: That’s the first thing that we’re doing at Palito. Down in Coringa, our other new asset, which we are developing. That is actually build ready. When we bought that asset, Anfield did a terrific amount of work there. They spent a lot of money. And they built camp. They bought a process plant. They bought all the toys. A lot of the mining equipment. They did a lot of work. They did the studies, which is great. People ask me all time, why did Equinox sell the asset. Scale! Too small for them.  At the time they probably thought the asset was going to be a lot bigger and was going to be their platform to build a gold mining company in Brazil. And they were looking for something a lot bigger than Coringa could be. Although it’s a very tiny deposit, it doesn’t really work for anybody else except us. We’re in Tapajos. We’re the only hard rock producer. Coringa’s 200km down the road from Palito. There’s little point two companies having to 50,000 ounce mines, in the same region where there’s very little else. They belong in the same stable. So the marriage occurred. We bought the asset. We’re now working our way through the permitting process. We’ve just submitted our new Environmental Impact Assessment (EIA) or statement yesterday. We should get a public hearing in around well, after that’s been protocoled and approved, which hopefully will take about less than a month. We will get a public hearing when we actually go to the local community, and hopefully get approval. And I think because we have been in the region for 10 years with the same authorities. We’re not exactly the new kids on the block.

Matthew Gordon: So just on that. We’re starting to build a picture of the types of facilities, mines, operations that you are comfortable with. And they are similar in profile.

Mike Hodgson: Very similar. I don’t think you can actually have a deposit more similar.

Matthew Gordon: Sorry I did mean to ask, in terms of the ore sorter, what’s the timing of that and more important what is the timing of when the benefits of that start flowing through?

Mike Hodgson: The sorter has taken a while to get. But it’s now at site. It’s being all the infrastructure around. It’s now being fabricated and installed. We will switch it on probably in November 2019. We hope to be doing its job in January 2020.

Matthew Gordon: So imminently it will start to contribute towards the bottom line?

Mike Hodgson: We’re going on guidance. We’re about to close Q3/19. It’s been just the same as Q1/19 and Q2/19. Another 10,000-ounce quarter. So we’re bang on guidance to do our 40,000 ounces for the year. And I think next year we’ll hopefully be making a hole in 50,000 ounces because of the ore sorter.

Matthew Gordon: So that that’s going to hit the bottom line from Q1/20?

Mike Hodgson: Yes, it will. And we’re sitting here today, 40,000 ounces making about $4M – $5M. That’s going to go up very handsomely with the ore sorter. 10,000 ounces of very little incremental cost. With just a little bit more process cost.

Matthew Gordon: Something to look forward to end of Q1/20. So now we’re going to talk about Coringa, because it meets the profile, it’s a similar looking system. More of the same. You know what you’re about. So tell us about what’s happening at Coringa.

Mike Hodgson: Repeat the formula. Coringa, obviously, our big news recently was the publication of our PEA, which was great. It really just demonstrated what we absolutely expected.

Matthew Gordon: You made a few tweaks to it?

Mike Hodgson: Yes, it’s going to be a 40,000-ounce deposit. The process plant is there. A little different to Polito. This process plant was bought from a mine in Para. It’s actually much bigger, so there’s no capacity issue with this plant. It’s a very similar deposit to Polito. We are just working our way through the permitting process at the moment. One thing that we do have already is we have the mining license, which is something Equinox never got to. We can start the mine tomorrow, subject to funding. We are going to start going underground. Why is this important? It’s important because we want to first of all, we want to establish the continuity, because Coringa degree is a greenfield site. It’s drill holes. 1. We actually want to establish that continuity. 2. The indications are in a lot of the drill holes that actually the widths at Coringa are probably a little better than Polito. And I think there’s an opportunity to maybe semi-mechanise this deposit, which would be great. Great for cost per ounce. And 3. we want to take a nice big bulk sample because Copringa is 200km away from Polito. We will truck that bulk sample up to our ore sorter at Polito. And we will let you run it through and see how it performs. I would suspect that the ore sorting is going to work very well and therefore, although we don’t need the ore sorter from a capacity issue at Coringa. Why process granite? Why not put an ore sorter in there? Again, it’s all about grade, grade, grade. Get that grade up as high as we can and the get the ounces from processing as little material as possible.

Matthew Gordon: What was the timing on all of this?

Mike Hodgson: We want to actually start the underground development in before the end of the year. In Q1/20. Now, we can start the mine. What we cannot state at Coringa yet is the process plant and the construction. We’ve got to work our way through the process. Now, that’s why the EIA has gone in. We hopefully will get what’s called the Preliminary Licence by the end of the year. That is basically the Environmental Impact Assessment (EIA) followed by the positive public hearing by the end of the year. If all that happens, that will be great. Then we can actually launch into what’s called the construction licence. We then bring in an engineering company to come and do the basic engineering, which is basically the design work for the erection of the process plant. That will probably take around 6 months. So we would like to think we’ve got the construction licence by early Q3/20 next year. Which means that we can start building.

Matthew Gordon: Construction towards the end of next year is what you are aiming for?

Mike Hodgson: I would like to think we’ll start August time we will be starting to build. And having just done it at Polito.

Matthew Gordon: You are talking to the same departments and government bodies. You have established relationships. The track record. You expect those sorts of timings based on what you previously experienced.

Mike Hodgson: Exactly. These are the guys that gave all of this for Polito five years ago. We’re just doing it again with Coringa. So they’re very comfortable with us as being the only game in town really. But the good thing if we do start the mine first to actually assess and maybe improve the mining, optimize the mine plan by this underground development. And maybe optimize the flow sheet by adding in an ore sorter. We’re just going to improve those PEA numbers even more. And the good thing about that is I think people will note that in the PEA, we’re talking about a CapEx number of $25M, there’s 20% contingency as well. And let’s face it, that study was completely based on Polito. It’s the one thing we have 100% confidence in is costs.

Matthew Gordon: True. I’d say you more than most. Because most PEAs have a variance of +/-30%. You’ve based it on what you’ve done previously.

Mike Hodgson: I thought that the consultants were being rather penal. 20% contingency on costs on a mine that’s just up the road is identical to the one we’re going to do. So we’re pretty confident that the $25M, we can chip into that. And there’s also the All In Sustaining Cost (AISC) is coming in at about $850 and this 20% contingency on that. So, we’re looking forward to Coringa really bringing our costs down.

Matthew Gordon: Now, that’s because most of your costs are staying at Polito.

Mike Hodgson: So that’s why it’s loaded.

Matthew Gordon: The blended number?

Mike Hodgson: $900-$950.

Matthew Gordon: A nice number. Is there much you can do about that? I know you’ve got various fixed costs which you can’t affect.

Mike Hodgson: The gains are basically if we can actually get some mechanised mining in there. The gains are going to be will an ore sorter work at Coringa too? These are the real nice little gains.

Matthew Gordon: Is there a number you’re chasing?

Mike Hodgson: I think we’re pretty tough to do underground mining much less than much less than $900, maybe high $800s. That’s gonna throw off a nice bit because it wasn’t so quick.

Matthew Gordon: We’ve got three locations. What’s that combined number look like? You’re heading up towards original size production.

Mike Hodgson: So the two are the two mines, Polito and Coringa. They’ll both be doing about 40,000 ounces each now as well as that. The other thing that we’ve been doing is basically on mine site exploration in and around the Polito and Sao Chico ore bodies. One of the use of proceeds of the capital raise that we did in 2018, when Greenstone came on board, was we flew an airborne geophysical survey, over the whole tenement. 40,000 hectares of that wasn’t cheap, but the results it threw off were great. The thing lit up like a Christmas tree. Again, what we’re looking for is, are these sulphides which show up with airborne geophysics very well. And we have artisanal mines all in our property. They’re not a problem. They only mine that top 10m They are their exploration tools. They’re great. So a combination of those and anomalies etc are really important. We use the airborne geophysics as a high-level filter. And then wherever we have anomalies, we go on the ground to do follow up ground geophysics and geochemistry, and just basically this risk reduction before we actually drill. And we’ve actually got some fabulous anomalies, both in geochemistry and ground geophysics in and around Sao Chico, which is our satellite ore body. And where we are now drilling at Sao Chico in the immediate mine site area looking for strike extensions, which is going very well. And then we’re going to move on to these discovery drill programs on these anomalies, which are only 3-4km away from the actual Sao Chico deposit itself. We can turn exploration success into production growth very quickly, particularly at Sao Chico. So the third part of our our strategy is to continue Polito as it is, add the ore sorter. Develop Coringa, advance the permitting and actually get underground at the same time. Finally, on the organic growth, its mine site exploration and maybe a little bit more in and around our current producing assets Polito and Sao Chico. So all in all, base case 80,000 ounces, we think we can with a bit of exploration success in and around our backyard’s, we can get to 100,000 ounces in the next 2-3 years.

Matthew Gordon: Well that’s the magic number.

Mike Hodgson: It is but it frustrates me a little bit because, I think the most important thing is cash flow. Free cash flow. Everyone’s obsessed with 100,000 ounces.

Matthew Gordon: It’s more an indicator of scale and opportunity. I think the picture you’ve painted today is an interesting one, in the sense that, you know the type of structures that you’re after and the types of projects that you are comfortable with and have the knowledge of developing. You’ve got to get Coringa going. But it also says potentially future M&A is we know what we’re looking for. We’re very, very specific. I know you’ve got the organic stuff. Is there much M&A thinking going on?

Mike Hodgson: I just think we recognize that we’re not ready for that yet. I think I think at 40,000 hours it’s hard. You have really got the currency, and we’ve got a project to build already. So that’s where our focus lies. I think once we’ve got Coringa permitted and we’ve got the funding in place, and we’re building it, we’re really on our way to 80,000 ounces. I think at that point we’ve probably got the firepower to have some serious conversations. And, you alluded to our costs. At the end of the day, it’s underground mining. It’s not the cheapest mining on the planet. Open pit brings that. So, I would like to think our next acquisition would be if we do one, or merger it’s a blend of underground high-grade with some scale to get our costs down.

Matthew Gordon: is there much of that in Brazil.

Mike Hodgson: Yes, there’s more of that than there is the underground. I think we’re the best small underground miner in Brazil.

Matthew Gordon: I’m a buyer of that.

Mike Hodgson: We won’t do a deal for the sake of doing the deal.

Matthew Gordon: That’s what I mean. There’s dilution in that. It’s a new type of mining for you. And there are many carcasses on the side of the road in Brazil. Step forward with caution.

Mike Hodgson: Our ex-chairman always says to me, sometimes the best deals you do are the ones you don’t do.

Matthew Gordon: Keep your money in your back pocket. But I like sweating your own assets with this organic growth. If you’re in an area that’s prolific and well-known, why not.

Mike Hodgson: The area has seen 30Moz of artisanal gold mined. There’s been no systematic exploration in this part of Brazil, which scares a lot of people off. But for us, it’s a blank canvas. And I really do think the ore sorting, and our approach is going to be a bit of a paradigm shift to this part of the world. We do not market ourselves as a Brazilian mining company. We market ourselves as Para mining company. Because Brazil is a collection of 26 states. State government rules over Federal government big time. You’re not going to solve any problems in Brasilia. It’s all in Bélem in the State capital. And again, we’re in Polito. We’re going to try to develop Coringa using that relationship. This is a great place to be.

Matthew Gordon: So let’s talk about the market. Obviously you are producer, so you’re seeing the benefits of the gold price, which is great. Explorers and developers are not seeing it. Most of them aren’t seeing it. You are. Which is great news for the bottom line. More free cash flow. But you’ve got things to spend it on?

Mike Hodgson: We always have. We’re saving as much cash at the moment. We have a final payment to actually fully acquire Coringa at the end of the year. We’ve just got the cash. We’ve basically got that in the bank. Which is good. So we’re just trying to build as much as cash as we possibly can through the end of the year. So make sure Coringa is 100% ours. Which it will be and then we derive forward.

Matthew Gordon: You’ve got the cash to acquire the asset. You’ve got incremental free cash flow in with gold as it is today, long may that continue. Is that enough to allow to do the things that you want to do. Certainly around growth organic, for instance?

Mike Hodgson: It’ll be tight. It all depends on where the gold price is going to be. I look at Coringa and we’ve got we’ve actually got we’ve had it we’ve got a great relationship with Sprott Asset Lending. The only equity raises we’ve done the last 5, 6 years, have been the equity raise to put Polito back in production. And obviously the what we did last year to get Coringa. In the meantime, we’ve just taken on some debt.

Matthew Gordon: So that’s Sprott?

Mike Hodgson: Sprott Asset Lending out of Toronto. We basically borrowed $8M. We paid $8M back out of cash flow. They thought we were legend Most people do an equity raise to settle the debt. We earnt a huge amount of trust with these guys and they are absolutely ready and waiting when we’re ready permitted with Coringa.

Matthew Gordon: So again, I just say it sounds like you know what you’re doing with it goes to your cash position with the acquisition and the debt and so forth. So maybe that’s one we can pick up on the next update when you have delivered a few of these things. Because I guess you’ll be in a position to know where you’re at, and what you want to do. But, just just on this market condition at the moment. Have you got any views? Is it going to sustain? Do you have an opinion?

Mike Hodgson: Well, we had a board meeting today. Everyone around the table had a different view.

Matthew Gordon: Well, who knows?

Mike Hodgson: Do you?

Matthew Gordon: Well, no, absolutely. Absolutely not. But I’ve heard some really quite strange $3,000 type numbers being put out there. Obviously that sells.

Mike Hodgson: I just went to Beavercreek to the Metals Summit. We are all of the gold bulls? 85% of our costs are in Brazilian Real. Once we’ve got the double whammy. We’ve got we’ve got the gold price growing and 6,300 Real ounce. I mean a year and a half ago it was just over 3,000. There always used to be a natural hedge between the Brazilian Real. When gold strengthened, the Real was was weakening or vice versa. We never really got the double lift.

Matthew Gordon: A lot of people are getting that.

Mike Hodgson: Record levels in Australia. Record levels in Canada. All the resource-based economies are actually getting this.

Matthew Gordon: But it’s question of how long it lasts?

Mike Hodgson: At the end of the day, you look at the macro economics. China and the US and all that, it probably bodes quite well for gold with all this uncertainty, I think. But, people with much better pay grades than I, have got it pathetically wrong. Well that’s probably why, the time is good. Our share has gone to three times, and the market’s there at the moment. I hope he’s gonna be there when we finally need it.

Matthew Gordon: It’s been a good chat, good introduction, because we haven’t spoken before. Our listeners and subscribers have not heard the story before. I know you’ve been around for a while. I wanted to speak to you. I like the robust, relentless, can do attitude of the business. And its share price has been what it’s done for the last few years, but it’s on the move. It’s doing all the right things it seems to me. I want to see that you continue to deliver what you say you’re going to. Do you want to leave us with maybe a few reasons why new investors should be looking at Serabi now?

Mike Hodgson: We’ve now got a record. There’s liquidity. You can get stock now, which is great. For a long time, you couldn’t. So that’s a plus. And there’s a lot more steam in this price. We’ve got a real great economic tailwind at the moment. We’re going to be meet guidance. And next year it’s going to get a little bit better.


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

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Pan African Resources (AIM: PAF) – A Dividend Paying Gold Producer (Transcript)

Interview with Cobus Loots, CEO of Pan African Resources (AIM: PAF).

We don’t tend to like investing in Gold producers as they rarely perform for shareholders. But we like this one, a lot. The CEO is brutally and refreshingly honest. He spends lot of time pointing out the difficulties in mining and operating in South Africa.

However, they make it work. They have a long track record of producing Gold and paying dividends. Last year they suspended the dividend payments as their debt borrowing for the new plant was the focus, however, they are planning to pay a dividend (subject to shareholder vote in November). The Audit Results are out today. The numbers are extremely encouraging and show a tremendous growth across the company. Cobus Loots talks about how they have done it and what the growth targets are in the short term. We were impressed about the way they think about capital allocation. Investing in their assets, they want to repay the debt on balance sheet, paying a dividend and how to deliver growth.

They still have a lot to do but we think this team is rigorous in its planning and methodical is how it delivers its projects.

Interview Highlights:

  • Overview of the Company
  • Audit Report: Great News?
  • Safety & Why It is Important to Pan African Resources
  • Productivity & Production: What Numbers Are They Looking At? Can They Lower Their AISC?
  • Paying a Dividend: Why Now?
  • Mining in South Africa: Benefits and Risks
  • Company Financials and Share Price: What’s The Outlook?
  • Future Plans for The Company

Click here to watch the interview.


Matthew Gordon: I’m looking at your executive officer statement. We had a chance to quickly scan through this. Some great numbers on there, you must be very pleased.

Cobus Loots: We are quite pleased. And I think this was a great improvement on pretty much all fronts.

Matthew Gordon: Definitely. Give us a one-minute summary of the business for those new to the story to start with.

Cobus Loots: The company is Pan African Resources PLC. We’re a UK company, but with a South African base, with all of our operations currently in South Africa. We have two large gold mining complexes. The first being Barberton Mines. Barberton Mines has been going for almost 130 years. So, gold mining started in Barberton in 1886. We’ve made some major improvements in recent years at Barberton. So, we have the underground mine that we’ve been mining, and will continue to mine for quite some time. And then we also have a tailings plant that produces ultra-low-cost ounces. The other complex is Evander Gold mines. The largest operation that we have now as part of the Evandar is the Elikhulu plant. That also produces very low-cost and low-risk gold ounces. And then we have an underground operation that we are also in the process of developing further at the moment.

Matthew Gordon: Can we talk about some of the growth stories that I’ve been reading about, eg: Egoli and Royal Sheba. But let’s start with these numbers. You’ve produced some exceptional numbers there. What stands out for you?

Cobus Loots: What stands out is the fact that we improved our safety performance at the year past. That’s critical for us on a number of fronts. If we can’t produce safety, we cannot produce. I’m very happy to report that all of our safety statistics have come down in terms of incidents in the last year. That’s a result of principally the Elikhulu tailings plant, which inherently is just a lower risk operation, but then also a massive focus on safety schemes, safety initiatives across the group. The safety box is never ticked. We have to continue to work on safety, but it was a good performance. Operationally we exceeded our production guidance for the year past. That’s obviously quite a positive. Actually, from all operations we had an improved performance. On the cost side from an All In Sustaining Cost (AISC) perspective we reduced our costs quite substantially. I’d like to say we are the lowest cost producer in South Africa as a group, certainly amongst the lowest cost at the moment. But not only that, we also internationally very competitive. So, AISC came in at $980 an ounce. The international benchmark at the moment is just over $900. So, $980 versus $900. Not bad. And there is potential for us to bring down that cost further in the year to come. So overall, good performance. I’m also very pleased by the fact we are proposing a dividend for approval at the upcoming AGM. And that’s positive. We had to suspend the dividend last year as a result of obviously gold price. What was happening at Evander, the substantial capital we were incurring on the construction of Elikhulu. So, I’m quite happy that the dividend is back. We’ll be at a more modest level, but it’s still to 1% yield is not to be frowned at.

Matthew Gordon: Good news it seems to me, but not without a lot of hard work from your team. And I noticed the first thing you focused on there was safety, which again is unusual. People usually to stick that at the back of the presentation. Why is it such a big deal for you guys?

Cobus Loots: If you analyse it coldly, the world is changing. If you can’t produce gold safely, it makes it very difficult to produce. Our people are our primary asset. That’s an addition to our ore bodies and all of our other infrastructure. So, we need to take care of our people from a health and safety perspective. Safety first, health also very important. So, without our people, well, we can’t achieve what we’ve achieved in the last year.

Matthew Gordon: Good. Nice to hear. Let’s talk about productivity. You’ve increased your forecast, so you’re going to be producing at what level by the end of next year?

Cobus Loots: We’re guiding 185,000 ounces for FY20, which as going to you said, is quite a be a big improvement on the 172,000 that we did last year. So that’s off the back of a number of projects. So, 1. Elikhulu will produce now for a full year. We commissioned Elikhulu in September 2018. So, we really only had the benefit of nine months of production from Elikhulu. You obviously ramping up also. So now you’re looking at a full year of production from Elikhulu which includes the enhanced or increased capacity via the ETRP. It’s a tailings block. So, we’re saying 65,000 ounces from Elikhulu. We’re saying 20,000 ounces from what we call the Evander Pillar project at the Evander underground, and then 100,000 ounces from Barberton. So, that makes up of our increased production guidance of 185,000 ounces.

Matthew Gordon: That puts you firmly in the mid-tier producer range. And if you look at what gold price is doing in the last couple of months, you’ll start to see the benefit of that in terms of margins, because of the amount that you’re producing. I make that point for investors, because there’s an assumption because gold is up that the junior explorers and developers will benefit. And they don’t. It’s the producers who will benefit far more quickly because of sales. You talk about the lower AISC, which I thought was interesting. You are striving to drive towards that $900 mark. You’ve clearly made some headway into that. What do you attribute that to and how are you going to continue driving the AISC lower?

Cobus Loots: The first contributor to the reduction of AISC has most definitely been our tailings business. We commissioned Elikhulu in the last year. It’s quite a large plant. It processes 1.2Mt of tailings p/m. And that’s where we get our 65,000 ounces of gold for the next year. The great thing with Elikhulu is it produces at an exceptionally low AISC. We should be at $650, if not lower. We then have the Barberton tailings retreatment plant (BTRP) that does also 20,000 ounces. So overall, we have 85,000 ounces that are what we like to call ultra-low-cost production. This provides a stable base load, for our portfolio, and allows us to survive pretty much in any gold price environment. And it brings down the groups AISC quite significantly. Those are the tailings businesses. There’s quite a lot of optimization happening underground at Barberton. We’re simplifying the infrastructure. We’re doing a lot more development which allows us further access to high-grade ore bodies. We’re looking at the marginal side of the business to see if we cut some ounces and reduce costs? There are a number of initiatives also ongoing to further reduce the AISC for the group.

Matthew Gordon: But that does tend to suggest that the Barberton costs are quite high.

Cobus Loots: If you look at our results presentation, Barberton underground actually has put different shafts with different cost structures. The flagship underground business is Fairview. Fairview has been going for many years. It’s an incredibly high-grade ore body. It’s on average more than 10g/t, but we get pockets of +100/gt. The principal ore body that we mine at Fairview is the MRC. It has a life currently of 20 years. And we’ve been doing a number of improvements to infrastructure to ensure that we can continue to mine successfully, safely and profitably in years to come. So, Fairview by itself is still a fairly low-cost producer. Then we have a more marginal ounces at Sheba and at Consort. So those are the answers that we have to focus on and reduce that all in sustaining costs.

Matthew Gordon: With regards to Sheba, what’s the chances of that making some kind of contribution this year?

Cobus Loots: Sheba has certainly contributed in the year past, but the focus is increasing that contribution. It’s a project that we’ve been speaking about for some time. We want to get the first gold out of Royal Sheba in the year to come. Sheba should do better this year.

Matthew Gordon: Let’s talk about dividends. But you’ve announced that you’re going to pay a dividend, it’s got to be voted for. I’m assuming the shareholders will accept. What made you do that?

Cobus Loots: It’s a modest dividend versus what we’ve paid in the past. It’s still in effect a yield versus having your money in a bank and in some jurisdictions earning a negative interest rate. I think that makes it attractive. If you consider the way that we think about capital allocation. 1. the first is investing in our assets. We have to continue invest in our assets, otherwise we will not be able to continue to generate returns. 2. is balance sheet, because of the project Elikhulu that we constructed in the last year, our balance sheet is highly geared, certainly more than what we’d like to see. So, in the next year, we’d like to repay quite a lot of the debt we have sitting on the balance sheet. 3. it is providing a cash return to our shareholders in the form of dividends. 4. once we’ve taken care of those we also look at growth.

Matthew Gordon: Mining is tough. Mining in South Africa is really tough. But your track record of bringing projects online is good. We talked previously about doing business in South Africa and what it was like. And you said, ‘yeah, it is tough, but we deal with it. We’re used to it’. Tell people about that conversation because I thought it was fascinating.

Cobus Loots: Well, I’ve concluded that gold is so precious because it’s so difficult to mine regardless of where you are actually doing your mining. South Africa has a fairly negative perception internationally and some of it is justified and some of it potentially is not. We have a long history of mining, certainly gold. More than 50% of all the gold that’s been mined in the world has come from our country. We have great infrastructure. We have access to power. We have access to technical skills. We have a good constitution. We have a good legal system, etc. But then you’re faced with the con’s also. You have unemployment. The economy is not doing great. There’s uncertainty in terms of mining legislation. We have power challenges, electricity issues. So, that sort of makes for an interesting mix. But as you point out, we’ve been able to mine successfully in South Africa for many years. We’ve been able to bring great projects online in South Africa in recent years which demonstrates that we have the ability to operate. One thing that’s certainly come to the fore in the last year is that Africa generally is a difficult place to do business. You look at regulatory issues in Tanzania. You look at terrorism in West Africa. You have to accept that mining in Africa does come with challenges and you have to equip yourselves and skill yourself to be able to deal with us and be successful and operate successfully and sustainably.

Matthew Gordon: You bring up points which most CEOs try to avoid discussing, which I appreciate. It’s also on page 7 of the presentation whene you talk about the underlying risks and how you’re dealing with them. It’s quite attractive when a company is refreshingly honest about the issues that they are dealing with. What it is hard to argue against is your track record of continually delivering the answers. What’s also important is driving that share price up. You have had your share price affected negatively. So what are you doing about it?

Cobus Loots: Well, if a share price does badly and we continue to sort of fret and worry about the share price, that it doesn’t really get us anywhere. So now we have a saying that ‘we focus on those things we can control and then the share price will take care of itself’, as it has done to some extent. I don’t want to speculate about the future, but now we’ve repositioned ourselves as a low-cost producer, even in a global sense. We have a long life. We have great projects where we can further increase production with fairly benign investments. I think we’re well positioned. We are safe producer. We are investing into our communities. We’re making a difference where we operate. All of that makes for a good mix. And if we deliver pretty much what we said we will do, the share price should take care of itself.

Matthew Gordon: As a producer, you’re benefiting from a higher gold price. Certainly, next year’s numbers will should, if it continues, benefit from a higher gold price because your margins are quite good. They’re definitely improving. I want to see them continue to improve. And I’m sure you do too. Let’s see what that looks like in the next the next few months. The one thing which I look for when I’m analysing a company is an understanding its financial health. You have debt at the moment. Which project are you using that for at the moment?

Cobus Loots: Well, that was the $130M Elikhulu project this last year. The project-based testament to what you can get done in South Africa. So, to put $130MIL into the ground in 12 months is not insignificant. This plant can cheat 1.2Mt of material a month. We currently produce for 65,000 ounces at an ultra-low AISC in the year ahead. So that’s to demonstrate that you can get things done in South Africa.

Matthew Gordon: And have you got more plans to raise any more money for capital expansion programs or are you done?

Cobus Loots: We are funded as far as the existing projects are concerned. So, there’s no need for us to go to market. I think the shareholders want to see us deliver on what we said we would do. 2019 was a first or second step in doing that and 2020 should be more of the same.

Matthew Gordon: So, margins are improving. Cash flow is starting to improve, are you starting see the benefit of it now?

Cobus Loots: Well certainly at the current gold price we are definitely seeing the benefit. That’s another positive around being based in South Africa. We have generally a Rand cost base, which is our local currency, which means that inflation is higher than what you’ll find in U.S. dollar terms. Wage inflation is higher than what you see in dollar terms. Electricity inflation is higher than what you’d see in dollar terms. So that’s sort of generally then puts a squeeze on margins. Where there’s a benefit is when you find a local currency, the Rand, blow out a little bit more to the dollar. What it’s done in the last months. So, then you see the margins actually go up quite a bit more than what you would find in dollar terms for your African producer. You can look to hedge. But what I’m saying is that the negative on cost inflation is offset when you find a large depreciation in Rand, which is what we have seen in the last month. So, $15,000 gold price is good for us, 700,000 Rand per kilo gold price, which is what we look at is even better for us at the moment.

Matthew Gordon: And then there’s just one other aspect – you’ve covered off safety and you’ve covered off the CSG component, but there have been some disturbances in-country. One of your sheets talks about arrest rates. Why declare that one? What’s that got to do with your ability to mine?

Cobus Loots: Well, illegal mining is a serious issue, and not only in South Africa and the rest of Africa. But you do find the guys being in South Africa quite militant, aggressive, armed. It’s meant that we’ve had to up our game a little, to professionalize further. We’ve spent a lot of money on security in the last year, more so than in years past. And that’s to protect our assets and to make sure we can continue to mine safely and sustainably into the future. So, yes, it’s endemic in South Africa. The fact that you have really high rates of unemployment. That’s going to create discontent. It’s going to create sort of people that have nothing to lose. And hence are desperate and that’s understandable. And so, we do what we can. If you look at our operations, contractors and employees combined, we employ 3,500 people. So, rule of thumb each of the workers and contractors look after up to 10 other dependents. So, 35,000 people that’s depended on our business. So, that is a big responsibility for us and it’s also a big responsibility for government to make sure that we can continue to operate. And we have been seeing the support from government, both nationally and locally, in terms of making sure that we can continue to operate.

Matthew Gordon: It is not just restricted to Africa either. We’ve been speaking to some companies in South America also struggling with illegal workers and all the issues that brings. You’ve got to be sensitive, but you also need to be able to continue to mine. If I may finish off with what you’ve done with your current assets, you’re sweating those assets and working them hard. And that’s reflected in the numbers we see. We look forward to seeing some guidance as to what that is looking like during the course of the next 12 months, obviously. And the final question is always, so any plans for any acquisitions?

Cobus Loots: We continue to look at acquisitions. It’s always a good thing because it teaches you. I always say in looking at other people’s businesses, you learn quite a bit about your own assets and what you can do differently. So, to some extent we’ll be busy with Royal Sheba, as a product of us looking at assets elsewhere. So, it’s not a priority for us. If we only sweat our own assets and we develop as we’ve set out in our plans for the year ahead, you should see a nice appreciation in the value of the business. So, an acquisition is not an imperative for us. So, we’ll continue to look, but we are certainly by no means desperate. And we’ve always said if you can develop your own portfolio, that really is first prize. Elikhulu being case and point. Egoli potentially also part of Evander, being a second example of what we will look at in the year ahead.

Matthew Gordon: And I’m guessing, given you’ve got experience in underground mining and tailings, if you were looking, you’d be looking for some similar kind of setup that would be optimal for you.

Corbus Loots: I think generally it’s difficult for us to justify going out of Africa. Southern Africa in a way makes more sense because it’s close, it easier to manage. Well, I wouldn’t want to limit the company by only that. So, you know, does it make sense a risk adjusted return basis. That’s what we would look at.

Matthew Gordon: Cobus, thanks very much. I know you’ve got a really busy day today with these numbers out and you’ll be speaking to lots of people. Thanks for making the time for us. Appreciate that. Please stay in touch, because I think you’ve built, or you are you continuing to deliver on your track record. Refreshingly honest.

Cobus Loots: Great. Thanks for having me.


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

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Pure Gold Mining (TSX-V: PGM) – Funded to Production H2/20, High-Grade, Low AISC (Transcript)

Interview with Darin Labrenz, President & CEO of Gold Developer Pure Gold Mining (TSX-V:PGM). If you want to invest in mining or invest in Gold you need to be sure about the company’s strategy and the management team’s ability to deliver. Pure Gold recently closed a debt financing agreement with Sprott for $90M. This follows closely on from an equity raise in July for $47.5M. This means that they are fully financed through to production by the end of 2020. The company is hoping that their story will mean investors invest in Gold in Canada.

Investing in mining has slowed down in Canada in the last two years. Investing in stocks such as PGM has been slow too, especially compared to its peers. Darin Labrenz explains why now is a good time to look at Pure Gold Mining and mining stocks in general. He tells us why investors should not be nervous about their mine plan following the Feasibility Study. This is a large area play which needs planning and investing in Gold mines is expensive so investors need confidence.

Interview highlights:

  • Overview of the Company
  • Sprott Debt Financing and Company Financials
  • The Market: When is the Share Price Going to Move and Why?
  • Feasibility Study, Resource Risk & Assets: What are They Focusing On?
  • Why Should You Invest in Pure Gold?
  • Entry into the LSE, Share Price and Shareholders

Click here to watch the interview.


Matthew Gordon: We spoke at the end of April. A lot of good things have happened since then. So why don’t we kick off, just give people new to this story, one-minute summary and then we’ll get into some of these exciting developments. 

Darin Labrenz: We are Pure Gold Mining. Our flagship asset is the Madison Red Lake Mine, located in Northwest Ontario. In February of this year we completed a Feasibility Study that outlines an 800tpd underground mine with 1Moz Reserves at 9g/t, which makes it today the highest-grade development projects in Canada. Recently we announced a $90M a debt project finance package, which puts us in a position today where we’re fully funded for construction and anticipate for pour by the end of 2020. 

Matthew Gordon: Well, let’s kick off with one of those things you just mentioned. I think it’s the big news of the days, the Sprott debt financing. Can you tell us a little bit about how that breaks down? In fact, how did it come about because you listed on the LSE recently. You were going to talk to both markets about raising some capital. However, Sprott has come along and are giving everything you want. 

Darin Labrenz: We listed in London in May, looking to satisfy the equity component of our project financing ideally with a raise that was going to be supported by both the UK audience and the North American audience. In the end, Sprott did come along with the Bought Deal proposal and the lead investor in that was Eric Sprott himself. So Eric took down $20M of the $47.5M that we raised, putting them as a 10.2% shareholder of the company. We were able to draw in some UK participation. It wasn’t as much as we obviously had hoped for, but certainly did see some support from UK as well. Our listing in UK is still part of a broader plan to increase liquidity exposure for the company. So $47.5M raised in equity. And then we followed that up with a $90M financing package, which is broken down to $65M debt facility and a $25M US Callable Gold stream. 

Matthew Gordon: That’s a lot of moving parts. You’re fully funded now. Is that correct?

Darin Labrenz: We’re fully funded. In fact, when you look at our initial capital requirement for the mine, it’s a $71M. We raised $90M in our facility, plus the $47.5M equity raise and so the fantastic thing is we’re sitting in a position right now where we’re set to pour first gold in the end of next year, but we’re still continuing to drill and continue to pursue growth strategy for the company and in the financing that we’ve done is enabled us to be able to pursue that. 

Matthew Gordon: Why $47.5M equity? Why not less? It would be less dilutive? Is that because you didn’t know at the time. Were you engaged with Sprott at the time with regards to this debt facility?

Darin Labrenz: We were well down a path, with respect to a project finance facility, but at the end of the day, we didn’t really know what the final outcome would be in terms of the quantum that we would raise, the breakdown of how it would be raised. And so the $47.5M gives us the most flexibility moving forward. One of the things we want to be able to do and will be able to with this is, as I mentioned, to pursue a fairly aggressive growth strategy. And so we do continue to drill on the property and we’ll do so through the balance that you’re looking to increase Resources and areas, our new discoveries, that weren’t incorporated in the feasibility plan, we’re looking to ultimately incorporate them. The other thing is with this financing as it gives us a lot of flexibility moving forward with respect to the project build. No need for cost overrun facility, given that we have a fair bit of room in there with respect to the equity and debt components of the project finance package.

Matthew Gordon: If I look at the share chart it makes for a kind of sober reading. As I said when we spoke last time, you guys had got some great numbers in there, but the market didn’t really care and you are up from, I think we when we spoke at $0.55, but at $0.62 today, but it’s not a lot of movement. Obviously, you’ve had a bit of dilution recently, but do you think that this has just been about timing in terms of the equity raise, the way the market was going. Obviously in the last two months, Gold has moved considerably. We’ll see where it goes. If this had happened 3 months later where it clearly would have been better for you? How do you assess what’s gone on in the last three months re. around the financing?

Darin Labrenz: We can’t really predict what direction the markets are going to go. We were happy to receive a proposal from Sprott that included the equity investment by Eric Sprott. I see this as another sign of validation. When you look at the company, we have 4 cornerstone investors. You’ve got AngloGold Ashanti, which participated in equity financing, maintaining their pro-rata position so they’re a 14% shareholder. You’ve got Eric Sprott now at 10%, I’ve got Rob McEwen at 5%, and you’ve got Newmont Gold Corp in there. So a strong validation from two senior producers and two mining Titans. I can say when you look at Sprott and you look at Rob McEwen, they didn’t buy Pure Gold to come in for the mine that we’re trying to build. They bought with the anticipation that it could be much larger. And that’s certainly our view. You look at some of the opportunities that those two gentlemen have been an integral part of Gold Corp.  Rob McEwan, founder of Goldcorp, that company was launched really by the discovery of the high-grade zone, deeper down in the Red Lake Mine. And similarly, when you look at Kirkland Lake, which has been highly successful, led by Eric Sprott, the Fosterville mine has really rekindled itself with deeper down, high-grade discoveries. We think that that same potential exists at Madison and the financing we raised allows us to pursue a plan to demonstrate that. 

Matthew Gordon: But coming at it from the perspective of a retail investors, high net worth’s, family office investors, we’re looking at where the shares have been doing. You’ve been busy.  You’ve got a great grades, great project, it’s cheap in terms of the cap backs component to this, but the market just hasn’t reacted in the way that you’d hoped. With Eric Sprott coming in now and Sprott themselves coming into this, do you think that’s good for the institutional players or do you think there’s room for retail to actually do well as well? When’s the share price going to move, and why? 

Darin Labrenz: We clearly think that we’re undervalued. I have no doubt that there was a bit of an overhang with respect to project finance. So when you look at that typical mining investment curve, often companies will stall as they go into a period of project finance, into a construction period and ultimately start to generate cashflow where you tend to rerate. We think we’re really unique in this scenario in that our project build is very short. And so we made it a decision to construct last week and we’ve got a 13 month project build and anticipate pouring Gold by the second half next year. And we see this as the best of both worlds because not only are we moving towards the cashflow positive, but we have sufficient financing and funds in the treasury today to continue to drill in team to generate that growth interest. 

Matthew Gordon: Let’s talk about the Feasibility Study. Because if I look at chat rooms and forums, people are nervous about the plan, can you tell them why they shouldn’t be in terms of the deep watering access, rehabilitation…those sorts of things? Why should they not be nervous about the plan that you guys have laid out here? Because if I look back, a lot of Gold companies, their prices have popped. Gold at over $1,500. Yours has moved a little bit, but not a lot. Do think there’s this nervousness in the market about your plan?

Darin Labrenz:  Let’s talk about the Resource first and Resource risk. When you look at our project, we’ve got more than 1M meters of drilling that has gone into defining the Resource. In fact, the average spacing between drill holes within the feasibility reserve is 6.5m which is absolutely incredible. I mean, I’ve never worked on a project with that kind of density of drilling. So from that standpoint the Resource itself is very well-informed. This is a brand new mine that we’re building, all of the development is new. So when you look at the initial capital requirement $95M million. We’ve got about $31M going into preproduction underground development that’s putting in new openings to access the ore body. With respect to de-watering well that’s a natural phenomenon that every underground mine has to go through and I don’t see any particular risks associated with that. At the end of the day, we’ve got a very high-grade reserve, 9g/t, 1Moz in what I would call the starter mine and a huge opportunity here for additional Resource and reserve development as we push forward. 

Matthew Gordon: But what is the plan? This is a very big area you’re dealing with here. This isn’t one small asset, you know where everything is because you’ve done a lot of drilling. You’ve got a plan for a development of a whole entire area. What are you focusing on? 

Darin Labrenz: I mean it is a big area, but we’re talking about a mine that’s going to last for 12 years, in the base case. So we’ve got new discoveries near surface that we think have the potential to impact the mine as we move forward and we continue to drill in those areas. Ultimately, we’re looking at establishing all of the access required to develop the min. We’ll start with the existing ramp, which goes down 150 meters and we’re going to push that ramp downwards. We’ll eventually start moving into access development for the first stoping areas that’ll form the first part of our mine plan. And then in year three, we’re going to incorporate the shaft. And so what you ultimately see here is meta-materials accessing the mine via a brand-new ramp system and then all of the ore will be hoisted out of the shaft, which gives you a real operational benefit. So this is a reasonable size area but it’s an area that’s going to be developed over the course of 12 years and we think has potential to go for much longer than that. 

Matthew Gordon: So the plan will evolve over time the more data you gather. And so do you feel for right now, you’re fully funded. You’ve got enough margin in there for error to make sure that this thing gets into production towards the end of next year, you’re good?

Darin Labrenz: That’s right. And let’s not forget that our project has a history. It operated successfully for 36 years, generated 2.6Moz Gold over that period at a grade of 10g/t. So we have the benefit of a successful mining history and we also conducted a test mining program last year were also achieve plus 10g/t in test mining.  Within the two areas that we had planned in mine. Reconciliation was fantastic. We were within 1% on our expected tons. We overachieved our grade and at the end of the day we realised 13% more ounces out of those two areas. But one of the things that test mine showed us, is that with drilling hang wall and foot wall we were able to see better continuity in a lower grade portion of the model and ultimately, we were able to extract another 1,575t out of the area of grade of 8.7g/t, such that we actually achieved better than 50% more ounces than we expect in that area with that additional discovery. So, those all go along when you’re de-risking the existing infrastructure that we have in place. The 1M meters of drilling, very close density of drilling, it’s all brand-new development, fresh rock. This is a newer body that sits well away from any historical mining. And, then we’ve mined ourselves and achieved what we expected. 

Matthew Gordon: And, so remind me again some of the numbers, the IRR is 35%-36% sort of level. What was the AISC on this? 

Darin Labrenz: It’s $787 per ounce. 

Matthew Gordon: A great AISC. So that all the figures that one we typically look at on this project are good. You’ve just been in this rather boring period waiting for project finance to come through. But you think people should start paying attention now, because you’re moving to production and it’s quick production too. Let’s not forget there’s a very small CapEx required for this.

Darin Labrenz: Exactly. And our project obviously is very highly levered to Gold. All of our costs are in Canadian dollars. One of the things that quietly happened last week was when Gold hit $1,500per ounce in Canadian dollar terms across $2,000, which was an all-time record high in Canadian dollars. So when you look at our IRR and after tax NPV of the project, and our base case, which was $1,275 grounds. Our NPV is $250M. Today it’s $400M, so you can see the impact of the rising Gold price., And we think that we’ve got a project here that perfectly timed to deliver into the market. 

Matthew Gordon: Well, you and a lot of other Gold companies at the moment feel that way and we need Gold to sustain. That’s really interesting. Can we just finish off on the entry into the LSE? Obviously, you did that for a purpose to get out there and start talking to and have new investors see the story because the Canadian market was slightly frozen. How’s that gone for you? 

Darin Labrenz: We’re really excited about our secondary listing on the main market of the London Stock Exchange. We’ve got a bit of work ahead of us to continue to broaden the exposure, generate interest and generate liquidity. We’ve traded 500,000 shares on the London market today, which is a new milestone for us and we’re committed to it. We’ll continue to do to try and develop the exposure for Pure Gold and our project.

Matthew Gordon: So that’s great about what’s going on with the LSE? How’s trading overall? 

Darin Labrenz: We’ve been trading a lot of volume here over the last couple of weeks. In fact, we’ve created about 25M shares. So, I think we’ve had a bit of an overhang with respect to the financing, but I think we’re setting a new floor here and we’re really ready to break out. 

Matthew Gordon: You’ve got marketing in Canada and marketing in London, and you’re committed to that?

Darin Labrenz: Absolutely

Matthew Gordon: So, Retail’s important to you?

Darin Labrenz: All of our shareholders are important to us. Retail is a key component of our shareholder base and will continue to be so in the future. 

Matthew Gordon: Thanks very much for today. Really enjoyed that conversation. Thanks for the update. 

Darin Labrenz: Thank you very much. I appreciate the opportunity to talk about our project and I appreciate the line of questioning. You’ve taken a lot of character to go in depth and ask questions about our project that might not otherwise be brought to light so I appreciate the opportunity to respond. Thank you. 


Company page: http://puregoldmining.ca/

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