Exore Resources (ASX: ERX) – Gold Explorer with $10M in cash. Maiden Resource in September (Transcript)

Interview with Justin Tremain, Managing Director of Gold explorer Exore Resources (ASX: ERX).

How does Exore Resources stand out in a busy field of Gold Explorers? The Birimian Greenstone Belt has over 60 +1Moz Gold Resource companies. Which one should investors choose? Exore is in the right region but also leads to a challenge about how to get investors to notice them. We listen to what Justin Tremain has to say on the matter. One of the big plus points is that they have $10M in cash to be able to choose what to do next. We find out how Exore intends to spend their money to create actual shareholder value. What’s the exit?

They are looking to deliver a maiden Resource in the next few weeks. Hoping to deliver 400,000-5000,000 oz. What is Exore doing about promoting their company to retails and what are they saying? We want to find out how they are differentiating themselves in front of institutional shareholders. All licences and permits in place for now and hitting comparable grades for the region if not slightly higher.

Interview Highlights:

  • The Overview of the Company
  • Mining in West Africa and Companies of Côte d’Ivoire
  • Promotion: How Do You Stand Out From the Rest?
  • Cash is King and They’ve Got It
  • Strategy of the company: Why Put Out a Maiden Resource Now?
  • Share Price and Shareholders
  • Assets, Drilling and Permits – Do They Know What They Have?
  • Management Team and Relevant Experience
  • Are the Markets Treating Them Fairly?

Click here to watch the interview.

Matthew Gordon: Could you give us a one-minute a summary of the company and then we could look into some questions after that? 

Justin Tremain:  Exore is a very new company in its current form. It’s only been around for less than one year. We’re a gold exploration company listed on the Australian Stock Exchange with a head office here in Perth in Australia. But our project and our sole focus is on a gold expiration project in the Northern part of Cote d’Ivoire, which we acquired in December last year. So we’ve be aggressively exploring that project over the last 7-8 months, we’ve had a lot of success as our drilling results will show over the last 6 months. 

Matthew Gordon: You’ve been in the current form for less than a year. What was it before? 

Justin Tremain: Before it was just a cash shell, going back some time and had some lithium assets and that’s where the cash came from and then I joined the company. When I joined the company last year it was just a well-funded cash vehicle without a project and looking for a project. We had a $15MIL market cap with $15MIL in the bank.  

Matthew Gordon: Cote d’Ivoire, West Africa, well-known gold producing area, lots of companies in the area. I assume that’s why you decided to go there? How did you get into the project? How did you find it? 

Justin Tremain: It was really the project that attracted us first and foremost. It was a project that I was familiar with, when we looked at the project, we could say that there’d been a lot of early reconnaissance exploration work done by the previous explorer, but not a lot of drilling. And there was a really stellar walk up drill targets, and obviously we had the money to be able to do the project justice. And then when we looked at the country, we really saw a huge opportunity in Cote d’Ivoire. It really is the most stable place in West Africa now. And there’s long been an argument that it’s got the greatest opportunity because it has a very large percentage of the Birimian greenstone belts situated in Cote d’Ivoire, but it just hasn’t had the same exploration focus of the neighbouring countries. Yet it is that now over the last five or six years, the more stable countries now. So, it was really a project that got us that interested first. But then when we looked at the country, we could really see a lot of activity and a lot of interest building in Cote d’Ivoire of the next couple of years. 

Matthew Gordon: I noticed a very interesting chart at the back of your power point, ranking for terrorist activity. I see Cote d’Ivoire is actually below the UK and the US which I thought it was quite amusing. 

Justin Tremain:  It’s a very topical issue for West Africa and really for the world. But in West Africa, in some of the Northern countries, it’s becoming a major issue and it becomes very difficult to take exploration when you have those security issues. And unfortunately, Cote d’Ivoire did have one incident a number of years ago, but it hasn’t had any recent experiences. 

Matthew Gordon: You must get that question a lot with regards to safety. I think there are some countries slightly further North of you that perhaps do have that consideration. Cote de ’Ivoire, great country, I’ve worked there, nice people as well. So, if we look at the Birimian greenstone, it is prolific. In your PowerPoint you say there are over 60  +1Moz businesses there already so it is prolific. But isn’t that part of the problem? It’s all it’s very attractive but isn’t that part of your problem too in that you are one of many gold explorers in the region and you’re trying to stand out. Do you agree that’s a problem? And if so, what are you doing about it? 

Justin Tremain: I don’t really see it as a problem. At the end of the day, large gold discoveries are going to get interest from the market. The issue is getting a land position in the country because all of West Africa is highly sought after. But the ground we have managed to put our foot on, it’s very difficult to get a position like that. We have over 1,000km2 under tenure now and we’re very fortunate that the exploration company prior to us spent 4 years in putting together that package and spent 4 years before they could get on the ground and do any exploration, which obviously becomes a very frustrating and costly period. And when it was done we were able to step in and get started straight away with our exploration. So, the challenge there is more just getting that ground position and we’re able to do that in one transaction. 

Matthew Gordon: That’s a factor of getting land and being able to do mining. But your team also needs to worry about financing, share price…. You have a lot of cash in the bank, and we’ll come onto that in a second, because that’s your plus point. But in terms of promoting the company, is it not a concern of yours that you’ve got lots of people going around telling pretty much the same story and they’re sitting with Resource as well? 

Justin Tremain: For us it’s all about just adding value to the project and undertaking exploration in a very financially prudent and efficient manner. And then drilling results, as we’ve being put out over the last 6 months, will ultimately attract the attention of investors. Then obviously as an exploration company you are beholden to your share price. Do you need to raise further funds at some point in the future? And therefore, it’s important to be able to set yourself apart. But ultimately, that’s just in drilling results and then being able to find Resources. So, I think new discoveries, which we think we’re on to 2 such new discoveries, are always going to generate quite a lot of excitement. 

Matthew Gordon: You do have to do those things, but there’s a bunch of other companies doing exactly the same thing and they’re going to be going back to the ASX or AIM  and reporting the same story as you. So how do you stand out? What is the plan going forward? I know you are early stages, but I’m just interested in your think thinking. 

Justin Tremain: It’s a good question. What actually got me interested in Exore as a company before we had a project was its cash position. I mean, most junior exploration companies don’t have the benefit of having $15M in the bank that they can put to work and therefore really are beholden to exploration results and market conditions over the next 6 months. Whereas we were able to not worry about that, well-funded and not having to worry about raising any capital in the future and able to go about our business. 

Matthew Gordon: Let’s talk about the cash position, because I think that the two things in your favour I think, Aussie gold price. 

Justin Tremain: I mean, really, it’s the US gold price that is generating up interest for us with as we’re sort of US dollar environment in Cote de ‘Ivoire.  

Matthew Gordon: And so, cash. You’ve got what, $10M? 

Justin Tremain:  Yeah, that’s right. I’m just under $10M now, right around doing very active exploration programs. 

Matthew Gordon: So how are you going to spend that? When will that last you through to? You’re going to $30M-ish market cap today. You’re going to spend $10M. What do you want to see at the end of that? 

Justin Tremain:  Well, what got us interested in this project is we wouldn’t be here if we didn’t see the potential for a multimillion-ounce gold project ultimately. And for us that’s 2Moz-3Moz plus, which is a standalone project, which you could then take through to feasibility and ultimately development and production. So that’s our goal, where we sit today. It’s been 6 months and we’ve spent about $5M. I believe we’ll come out with a Maiden Resource in the next few weeks. And that should be a stepping stone towards that ultimate goal of a 2Moz-3Moz project. And I think it would be quite a significant stepping stone towards there and we’ve been able to achieve that with about $5M of expenditure. And so hopefully we can continue to continue to grow that Maiden Resource going forward over the next 12 months. And then when we next come back to the market, we’ll be based on a project that has a Resource firstly, and a much more substantial Resource, than what we’ll be putting out in the next few weeks. And a far more advanced project. 

Matthew Gordon: A Maiden Resource. That’s good. And so, you’re expecting what sort of level? 

Justin Tremain: Oh, it’s difficult to say until we put it out as an announcement. But I think, for us to say it is a material milestone, we’d be really looking for an initial position of for 400,000-500,000oz of gold. And that to us would be a pretty significant milestone to achieve in just 6 months of exploration. 

Matthew Gordon: And why did you feel the need to put out a Maiden Resource now? Shouldn’t you just be drilling, drilling and drilling and put out a meaningful Maiden Resource, 1Moz plus, that sort of level? You’ve got the cash. You’re not under any pressure. Why do it? 

Justin Tremain: Once again, that’s a very good question and something of much debate. We are an exploration company. So, going back to what you’re touching on before, what sets us apart is we want to be able to show that we’ve achieved something tangible in the first 6 months rather than just a whole lot of drilling results and be able say, what does this mean? And that sort of leads us to putting a Maiden Resource out, albeit very much an interim position, that then allows the analyst to say, well, they’ve actually achieved what they said they were going to do in the first 6 months and gives people confidence in what we’ll do in the next 6 months. 

Matthew Gordon: But it’s a very conventional response to mining, is to do it the way that you’ve done it. So, there’s nothing wrong with it because it’s conventional. But if we look at companies like Great Bear in Canada, they’re just drilling. There’s no Resource being put out because they’re hitting the grades. They’re drilling, drilling, drilling. But the analysts understand that. Again, coming back to the thinking of management team.

Justin Tremain: Again, I think it’s a slightly different model for TSX listed companies vs. ASX listed companies. TSX listed companies just like to drill, drill, drill until they have a very substantial Resource, a Maiden Resource. Whereas ASX companies tend to try and show a little bit more progression as the project ways forward. Really for us, we started out as a cash shell, no institutional shareholders, no analysts following. And I think just putting a Resource out allows us to attract some more institutions and we’ve been able to do in the last 6 months, but hopefully attract further institutions to our register, on the back of also some analysts picking up coverage of the company going forward. 

Matthew Gordon: You’ve got all this cash, so you’ve got all the optionality. You can decide how you’re going to spend it, how quickly you going to spend it, how many drills you’ve got running at the same time. But you’re conscious of the share price. What are you, $0.07 cents, something like that? 

Justin Tremain: Yeah, we’re trading around 8-8.5 cents. I wouldn’t say we’re too conscious about the share price over the next 6 months. But we are conscious where the share price may be in a years’ time the share price, it doesn’t happen overnight. So, gaining exposure doesn’t happen overnight. It’s a gradual process. 

Matthew Gordon: But it’s something that you’re conscious of, that you need to be speaking to institutions and Retail. You’ve got about 50% Retail following, mostly Australian. 

Justin Tremain: Yeah, look I think all expiration companies are conscious of the share price because it is ultimately the way they fund the company going forward. And the most critical thing for an exploration company is to try and minimise dilution for its shareholders going forward and therefore the share prices are always a critical thing for our junior exploration company. 

Matthew Gordon: How are you differentiating yourself with your story to those analysts who’ve seen a lot of gold stories out there, there’s a lot of West African gold stories out there, you’re an explorer, high risk stage of  Exploration.

Justin Tremain:  Well, there’s 2 things the really that differentiate us. One is our cash position and therefore, if therefore people who invest in Exore today they are unlikely to be facing dilution in the short term. And then secondly, and ultimately the most important, is the drilling results that we’ve been able to put out which shows that we’ve made a discovery of what we call the Antoinette area and looks like we’re making a second discovery in emerging discovery at Veronique. And that really differentiates us and the grade of those intercepts. And ultimately that’ll come out in our Maiden Resource, we think we’ll be able to show a modest start in terms of quantum. It should be at a pretty good grade for our Resource, which is sitting at surface. 

Matthew Gordon: Right. If I’m looking at comps, like at Cardinal next door, Ghana. They’re sitting up 5Moz, heading towards 7Moz, market cap $130MIL… They’ve been drilling, but they haven’t got the response in the market that they had hoped for. So, are you nervous about the current strategy delivering for you? Or do you have some degree of confidence? If so, where do that come from? 

Justin Tremain: We have a lot of confidence because what we’re talking about is an initial step, it’s just on one very small area at Antoinette. We’ve been drilling elsewhere, step out on that particular area that we’re looking at putting a Resource around within the broader Antoinette area. But also, at this new discovery, Veronique, which we’re not featuring any Maiden Resource but at some point in the future we hope that that will provide a step change to the project in terms of scale. 

Matthew Gordon: You’ve got all the licenses and permits that you currently need to be doing this drilling and you are drilling without any interference or obstruction. 

Justin Tremain:  Correct, actually, it’s a very important point. So, obviously tenure is always topical in a developing country and in Africa. And so it is part of the acquisition of this project at the end of last year, one of the critical conditions was the government approving the transaction, which they did, but also to renewing the permit which happened in the beginning of December. And that was really the final condition to the application. So, in Cote d’Ivoire, we had our permits renewed as part of the mining code for 3 years. And then we have the right to renew those for a further 2 periods, subject obviously to meeting our work commitments. But given the amount of drilling that we’ve been doing over the last 6 months, there is no question of meeting our work commitments.   

Matthew Gordon: You’re hitting similar grades to lots of companies in that Birimian greenstone belt. They’re good grades. Your focus going forward is about understanding how much of it you’ve got, right? Because at the moment, you don’t quite know what you’ve got. 

Justin Tremain: That’s right. I think the grades we’re hitting are at the upper end of some of the other round operating gold mines and just deposits around us. So, I think the grades is reasonably good, reasonably high-grade for surface mineralization. But you’re absolutely right. It’s all about how much gold we can define and the scale of the soil anomalies that we’re drilling definitely demonstrate that potential for that multimillion-ounce discovery. And the area that we’ve been drilling at Antoinette, represents probably, I think 10-15% soil anomaly within that area there. And as I said, we have a number of other very large-scale soil anomalies and one of which we’ve started to drill and have some success there. 

Matthew Gordon: So, let me just understand it better. You’ve started a process. You’ve got a land package, got the licenses, permits, the grades are at the upper end of the Birimian type usual numbers. But where’s this thing going once you’ve kind of built out some scale to it? Where’s the exit point for you guys? Because all of the mid-tier or the big boys are looking for ounces in the ground. And you must be conscious of that. So, what are you doing about it? How do you stand from the 60 other explorers in that region? 

Justin Tremain: My view is, you take the project forward. We’re at the stage of exploration, which I think is really where the value is created, is discovery and defining a Resource. But once we have the critical mass, which in my view is 2Moz-3Moz of gold Resource, then the company will evolve. The team will evolve. And we take that that Resource and project through Feasibility and ultimately develop. That’s where we’ll go. Now, if there’s interest along the way, so be it. But if we’re not taking the project forward and adding value to the project, then we’re not going to attract any interest in the future. So that that would be our strategy. But also, the area that we’re operating in, there is 2 existing operations in close proximity to us already, which have reasonably limited mine life as well, which when we look to these projects was always a little bit of a fall-back position, that there are 2 operating mills in close proximity, which in the next couple of years we’ll probably need additional mill feet. 

Matthew Gordon: And from what perspective? Go and buy those mills or just offer feedstock? 

Justin Tremain: We’d be way too early to tell at this stage. As I said, that’s very much a fall-back position for us. Our current strategy is to go into line and discover a Resource that has the economies of scale to development as a standalone project. 

Matthew Gordon: Have you seen any examples of companies being taken out with 2Moz-3Moz? Is that a normal scenario in West Africa? 

Justin Tremain: You know, there’s a lot of cases of West Africa companies getting to that 2-3MIL ounces and then being taken out. No question about that. I mean, it was a recent transaction within Cote d’Ivoire a few months ago, it was only 0.5MIL ounce Resource. Not a company, but a project held by the company, Newcrest, which Rosco came in and bought. So, that’s an example of a transaction I think that pays from maybe $20M with another $20M to come for 0.5Moz Resources. So, you can put that sort of that as the benchmark against Exore. 

Matthew Gordon: That’s a good one. I think there’s a lot of data that came with that project as well. So that’s a fair point. So let’s talk about the management team, track record and experience in the region and creating shareholder value ie making people money. Tell us a bit about the team.

Justin Tremain: Yes. So the county is chaired by John Fitzgerald. He’s a very well-known mining financier here in Australia. He sits on the board of Northern Star, which is obviously one of the most successful gold company in Australia over the last 10 years. Then myself, I joined the company 12 months ago really with the mandate to secure a project for the company, to put money to work on a project that offered a lot of upside in terms of our exploration potential. Prior to joining Exore, I founded and ran a company that defined and completed a feasibility study on the first gold mining project in Cambodia, so another developing jurisdiction. That company got taken over in 2016 and that company is now taking that project through development. And I remained at that for 12 months before coming across into Exore. And then on ground we have an Exploration Manager who is highly experienced in West Africa, spent the last 12 years purely in West Africa on a gold projects and has been involved in 2 quite significant gold discoveries in the Burkina Faso and some exposure in Cote d’Ivoire. He saw the potential of our projects and that’s why he was keen to join us on the ground as our exploration manager. 

Matthew Gordon: What’s the shareholding structure look like? There’s a big retail component to this, but how much of the management sitting on? 

Justin Tremain: On a diluted basis it’s just under 10% of the company.. A lot of that has been actual shares bought on market. 

Matthew Gordon: Any significant shareholders or significant parties that we should be aware of?

Justin Tremain: As I touched on before, as a cash shell had no institutions on our register yet, in December last year and now we have a number of institutions on our register which our drilling results have attracted that interest and that sort of set us apart from these companies that you refer to. We’ve been able to attract these institutions on our registry in a market that’s reasonably challenging still for exploration. One of those is a North American institution that’s a very active gold fund. It owns over 6% of the company. Then we have a number of Australian institutions sitting below that 5% disclosure level. 

Matthew Gordon: And do you think the market’s giving you fair value at $30M for what you have? 

Justin Tremain: I don’t think too many managing directors would think that. But look, as I said before, there’s a reasonably recent corporate transaction, where hard cash is being paid for fairly modest size Resources of I think 430,000 ounces at the time, which was a transaction at higher than our current value. But ultimately, we’re well-funded. So the share price is what it is. We just keep going and stepping out and producing the drilling results that we’ve been putting out over the last 6 months, which show these projects grow and grow. And ultimately, I think the share price will react accordingly. 

Matthew Gordon: You’ve got 4 projects – there’s  a great chart on page 16 of your most recent presentation. Antoinette, Veronique, Liberty and Project Wide. So they’re all at different stages. You’ve got to allocate your $10M somehow. So where’s it mostly being focused and directed?

Justin Tremain: Really, we have 2 permit areas, the Northern one we call Bogoe project and then the southern one, the Liberty Project. And whilst we call them different project names, they’re actually only about 35km apart. So if we define Resources, depending on the grade, obviously, on either of those projects, they definitely are complementary to each other. 90% of our focus has been on the Bogoe project which within that sits the Antoinette Prospect and discovery and also about 12km to the South, the Veronique new emerging gold discovery. So that that’s definitely our focus and both those areas are quite large. They’re about 7-8km, by 3-4km in width and we’ve really just touched the tip of the iceberg on both of those areas.

Matthew Gordon: And these are relatively shallow deposits as well. Is that right? 

Justin Tremain: Everything we’re drilling is. Open pittable Resources is what we’re targeting. So really in the top 150m. Everything is mineralization, is outcropping at surface there. And our priority is actually drilling the at the top 100m, which is predominantly where the oxide material is, which has also metallurgical and mining benefits. And that is actually one of the advantages of this part of the well in Northern Cote d’Ivoire, the weathering is very, very deep. So to be talking about 60m or 70m of weathering, which is very deep. 

Matthew Gordon: The other thing that’s an important point for people to understand about the gold in this region in the Birimian, is it does make it easier and cheaper to mine. So you’re expecting reasonably good ASIC numbers when you get to that point of understanding it. There are 60 other explorers and developers there who we can use some of their data to extrapolate from.

Justin Tremain: I would say about Cote d’Ivoire as well, which is surprising, is the infrastructure is very good, which then has some advantages particularly in capital cost. We’re no more than 30 kilometres off Silk Road. There’s high voltage power lines throughout northern Cote d’Ivoire, probably no further than 30 kilometres from a high voltage power line, so they have some cost advantages as well and the ground is all very open and the ground is very flat. So we have all these significant advantages when we get to that point. But ultimately, grade is king and what we are defining is pretty good grade when we compare ourselves to other deposits in the region. 

Matthew Gordon: I think I think that’s fair to say. Justin, thank you very much for your time today. That’s been a wonderful introduction to Exore. Very interesting indeed. That’s a fantastic part of the world. We look forward to hearing more from you as things develop.

Justin Tremain: Thanks for your time today and look forward to chatting further in the future. 

Company page: http://www.exoreresources.com.au/

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Ely Gold Royalties (TSX-V: ELY) – Can They Deliver a Re-Rate for Shareholders? (Transcript)

We interviewed Trey Wasser, President and CEO of Ely Gold Royalties (TSX-V: ELY). They are still a young company, having only being around for 3 years and are focused on Gold properties in Nevada. They have a portfolio of 33 Gold Royalties and 20 Gold properties sold on an option programme. There is an additional 25 Gold properties which are available for sale.

A Gold Royalty is a share of the gross revenue off the top line of a mining operation. The most common being the Net Smelter Revenue (NSR).

For us to invest in a Gold Royalty company, we need to believe that they can identify a good project and can write proper contracts. Trey Wasser and his team have come from a traditional Gold exploration background and have a track-record of identifying Gold properties, they have previously sold projects to Newmont and Osisko. This track-record should lend comfort that they understand the technical aspect of mining properties.

They employ a cookie cutter approach. Gold. Nevada. Small Royalties. They have learnt ropes with small exposure and risk. It has allowed them to be very niche and free of competition as the bigger Royalty companies don’t play in this area. However, now the business is starting to grow and the Royalty amounts are growing and the returns are increasing. They will look to raise money as they feel they have the ability to deploy the capital. And they need smooth and consistent revenue. This is going to be driven by the strategy and focus going forward so find out what say they are going to do.

They have a blended approach to the types of properties that they have. Exploration, development and now producing properties. This will allow them to compete at the lower end but we want to see how they intend to deliver growth. At $40M market cap it is still a small company. Shares are up 160% over the last 3 years but how do they continue to grow? What are their plans? At what point do they start to see increased competition?

There are some meaningful investors involved: Eric Sprott, Rick Rule – money is available. Does Ely Gold Royalty have the potential to re-rate soon? And when do they start to pay a dividend? We like Royalty companies but is this one of them?

Interview Highlights:

  • Overview of the Company
  • What are Royalties and Why Should You Invest in a Royalty Company?
  • The Team, Relevant Experience & Remuneration
  • Company Strategy, Growth Plan & Challenges
  • The Market: How do You Stand Out From the Rest? Is There Much Competition?

Click here to watch the interview.

Matthew Gordon: It’s lovely to have you on the programme Trey. We’re quite keen on Royalty companies. I think Micky Fulp mentioned your company to us, so we were keen to get a hold of you. Why don’t you start off with a one-minute summary on the business and then we’ll get stuck into some questions.

Trey Wasser: Ok, Ely Gold Royalties – we transformed the company basically 3 years ago and started building a portfolio of royal properties, mainly in Nevada with the idea of selling the properties and retaining Royalties. We’ve been doing that for about 3 years now. We’ve built up a portfolio of 33 Royalties. We’ve got 20 properties that have we sold under a 4-year option programme and if they continue with the option, those 20 properties will also generate Royalties. We then we have an additional 20-25 properties available for sale, so we control through our Royalty portfolio, our option portfolio and our available property portfolio, over 70 Gold properties, primarily in Nevada.

Matthew Gordon: Thanks for that summary. For people who are new to Royalties, can you explain what a Royalty is?

Trey Wasser: A Royalty is a share of the gross revenue off the top line of a mining operation. So, you have several types of Royalties. The most common would be a Net Smelter Royalty (NSR) which means that the producing company does get to deduct their cost of smelting the ore, which is the final process, which is to take what comes from the mine to make it 49 Gold. But other than that, the Royalty owner is paid right off the top line of the Gold sales.

Matthew Gordon: Right. How did you get into this? Have you been in the Royalty business for a long time?  What’s your experience of it?

Trey Wasser: I’ve been with Ely about 10 years and we were a more traditional Exploration and Development company. And we developed a project in Nevada – the mount Hamilton Project. We took it all the way to Bankable Feasibility Study (BFS) and full permitting and then sold that in 2015. That’s when we changed our business model and we did that by buying out properties from long time prospector in Nevada – Jerry Baughman – and Jerry then came onboard. He runs our Reno office, he’s our main land man and Jerry’s been doing this for 35 years where he stakes properties, very low-cost acquisition on his properties, sells them and retains the Royalties. He built up one portfolio that was sold, ended up with Newmont and it’s now actually a Osisko Royalties, in 2011.

Matthew Gordon: So, tell me a little bit about the team because there’s a couple of things that I would need to believe to invest in a Royalty company. 1. That you know how to identify good projects – projects which will succeed – where the Royalties will be paid or continue to be paid. 2. You’ve an ability around the paperwork around the contracting on a Royalty. I guess sometimes that can be fairly formulaic, but they are quite nuanced at times. So, tell us about the team ability to deliver on those 2 things.

Trey Wasser: Well first of all, the bulk of the team is Jerry and myself. Jerry being the land man and working on the identifying of the properties. As I say he’s been doing it a long time, so we’ve accumulated a database on properties that’s probably second only to Barrick Gold and Newmont in Nevada and the Western United States. So, we’ve very good at identifying the properties, I think the quality of our properties is reflected in our third-party partners. If you go to our website and look at the list of our properties that are in the Royalty portfolio, you’ll see all the major companies listed there. The mid-tier producers, Premier Gold, Barrick, McEwan Mining. The list just goes on and on and they’re top quality companies that are prospecting and producing, especially in Nevada. The beauty of our model is that with our option model, we don’t do joint ventures with our projects. They’re way too hard to handle. So, when you mention from the contract side, because we option the properties 100%, we don’t have any management of the projects once the paperwork is signed. We basically just send them an invoice, follow their news of course and report to our shareholders on the progress on the project. For the most part it’s a very scalable model. And what we have is templates that have been approved by the lawyers. So I do most of the legal and contract work and we work under a template so basically from the time we sign an NDA, it’s our NDA, it’s the same one for everybody (non-disclosure agreement), our term sheets are the same, the same options contract goes to everyone and it’s very easy. So, our Royalty Deeds and Royalty Agreements are, with a few changes, nuances from company to company, basically all the same and you’re right it’s a very good question because you can get jumbled up in a lot of different thing if we accepted everyone else’s contracts, but we don’t do that, we supply the contracts.

Matthew Gordon: That’s fascinating to me. That says to me that you’ve got a cookie cutter approach to this. It’s the same types of companies, same structures and set up. So, 1. You’re focused on Gold, which we’ll come to in a second. 2. It’s Nevada, which I guess we’ll also come to in a second. So, you know what you know, you can replicate it and that’s part of the strategy which you’ve consciously decided to settle on. Is that right?

Trey Wasser: That’s correct. We took Jerrys model and put it on steroids by putting more capital behind it, concentrated more on consolidating claim packages. What you won’t see on the surface is that behind the scenes, to put a property package together, we may go out and stake some claims. We’ll then work on putting all the claims together. The best projects that are unexplored in Nevada, that haven’t seen exploration since the 80’s and 90’s, have claim fragmentation problems where different parties own the claims. The major companies won’t fool with that and take that risk. So, we have been very successful in consolidating claims packages and that’s where the real quality of our projects and our partners comes through. I’d probably add one other thing re. back when you’re talking about the development too is we sensed in that last 6 months that we began to purchase some producing Royalties outside of our Royalty generation program and we can get into a few of those. In the development what we really focus on are projects and Royalties that are in and around producing mines. So, if you look at say Gold Resource, we have a producing Royalty at their Isabella Pearl mine that they just put into commercial production this year. But we also have a larger Royalty on all the exploration ground there at Isabella Pearl, about 7 miles of trend that’s been unexplored. 3 satellites mines or projects, Mena Gold, County Line where there’s been not a lot of production, because of claim fragmentation problems, not a lot of modern exploration. So that’s an example of where our projects are near producing mines so what they need to do is find just more ore, they don’t have to find enough ore to build a brand new mine. That’s the same for the case with Premier Gold at their South Arturo mine, that’s a joint venture with Barrick. We’ve consolidated some claims right in the middle of their mining project. We’ve just approved a sale of some claims right in the middle of McEwan Mining’s Gold Bar mine. So, our properties that are being developed have a very high chance of becoming producers.

Matthew Gordon: So that is to my point. It almost doesn’t matter what projects you’ve got to me as an investor. I just need to know that you’ve looked at them, they meet your criteria, this cookie cutter approach to Gold Royalties in Nevada, and it should be fine. I should just sit back and wait for the dividends, shouldn’t I? That’s the kind of trust level I need to have in you.

Trey Wasser: Well you know I think that having now been at this for 3 years in this business model. Jerry having had more than 10 times that (35 years). We also have on our board Bill Sherriff who’s a long-time prospector in Nevada. We bought all of Bills properties and Royalties a couple of years ago and his database which was huge. He’s on the board advising so we know where the projects, we know who the people are who have them which is why we’re able to do deals to consolidate the properties. But if you look at our website and look at the news flow, you can see we’re pretty prolific at doing deals with quality companies.

Matthew Gordon: You are but also if I go and look at the news flow there’s not a lot of chat around it, no one cares, because it’s fairly formulaic. It’s business as usual which says a lot to me – it says people either trust you or they don’t care. Looking at your share price, it’s heading the right way. Gold price is helping obviously. Just sticking on numbers if I look at market cap, your $40M, you’re a small Royalty company in a sea of quite big precious metal, Royalty and streaming companies in the US. Is that because you’re niche – you’re going to remain niche – you know where you sit in the market or is there room for growth?

Trey Wasser: Oh, absolutely there’s room for growth.

Matthew Gordon: From where?

Trey Wasser: We’re at a point in the market now with a $40M market cap. I’ve always worked around an overall limitation that is we’re looking at deals that would have to be an awfully good deal for it to worth more than 10% of our market cap. So, this time in the first couple of years when we were at a $10M market cap, I was looking at a $1M deals. Last year I was able to start looking at some larger deals and now that our stock, over the last 3 years, has been up 160%, so we are growing. Now we’re looking at deals that are in the $3-5M. They’re flying below the radar of the larger companies for sure and yet we’re at that hockey stick yard with our growth because a $4M Royalty deal to us at that size really moves the needle for us. All of a sudden it can add up to $1M a year in revenue and it’s going to be adding some of these $4M deals that allows us to get to the next step which will be where we can have a predictable income to start paying dividends.

Matthew Gordon: Right, ok. So, you’re going to stick with Nevada, it’s what you know, you’ve got a big data base. This niche means you don’t have to compete with the big guys, because it’s way too small for them so you think there’s enough growth in the next couple of years for you. Is there much competition? Are you competing for these Royalties?

Trey Wasser: Well, yes. We compete for them. Some of them we get a leg up one way or another. Because we are more exploration and development orientated we a look at things that maybe don’t have full Bankable Feasibility Studies (BFS) and necessarily proven and probable reserves especially if they’re with good operators. The big operators they don’t necessarily publish 43-101 reports on their properties. But again, there is some competition. But in the junior Royalty space which there’s probably 4 or 5 companies, I won’t mention them here, but they’re in the area of $100M-$200M market cap, maybe even $300M. That’s what we call the junior Royalty space and that’s what we’re aspiring to right now. We think we have a portfolio, we’re only a Royalty or 2 away from handling the companies that are $100M market cap. You then have a second group – the mid tiers – that would be companies like Sandstorm. They’re closer to $1Bn, they have more predictable revenues, starting to pay more dividends. Then of course the big boys, Franco Nevada, Royal Gold, Wheaton Precious metals. Every time you step up in the Royalty space add to your net asset value you get higher valuation. Franco Nevada’s trade at x25-30 cash flow and x2.5 to 3 Net Asset Value (NAV). The mid tiers are a notch below that, maybe x18-25 cash flow. Then the juniors are a notch below that. So, as you grow you actually get a higher valuation off of the portfolio.

Matthew Gordon: So what’s holding you back?

Trey Wasser: Absolutely nothing. We have been going gang busters. And like I said our stock is performing quite well. We are in this for the long haul. There’s not a secret sauce that says we’re going to magically transform. It’s a long-term game so you will see us continue to acquire more Royalties and do more option and sale deals that create Royalties. And over the next 2 years you’re going to see, we believe, probably 3 of our development Royalties will start production. You were talking about the due diligence before, the one thing, and I use our Lincoln Hill Royalty that we purchased from a third party this year. This is a property that was bought by Core Mining. It’s right next to their Rochester mine. At Rochester they’re building a new 300Mt leach pad that is right next door to the Lincoln Hill deposit. And when they purchased it Core said that this is ore they want to put on the leach pad. It’s 4 times the grade of Rochester. You don’t just have to necessarily just believe what I say. You can go and look at what our partners are saying and look at Core’s press release. They’re saying that they’ll be in production there by 2021, 2022 at the latest.

Matthew Gordon: Coming back to the question, whats holding you back? Is it a case of you can’t deploy capital or you can’t raise capital? What do you see as the hurdles you next need to get over?

Trey Wasser: Well, look we built the portfolio up and this year was really the transformation year for us. We spent the first 2 years mostly working with companies, third party partners, to sell our properties for them to know who we are. To understand our 100% sale option model with the retained Royalty as opposed to the joint venture model. And we were very successful in putting that portfolio together for the first 2 years. It was just last year that we really started doing any work to get out and tell the story to investors. One of our goals for last year, and we completed it right at the end of the year, was to get our first institutional shareholder. So, Rick Rule took us, through one of his Sprott global funds,a  9.5% position, literally right at the 1st of the year this year. And then a couple of months ago in April, we did a deal where we sold a portion of a Royalty we had to Eric Sprott and he took a 5.5% position. Our market cap has doubled this year so we’re looking at bigger deals. We have proven we have the ability to raise the capital, but we want to raise it in conjunction with deals. We currently have about $3.5M in the bank and some marketable securities that puts working capital a little over $4M. But, we have transactions on the table right now where that could be deployed in the near future. But, we do have people wanting put money in the company. We’re not in the mind to go out and to just dilute shareholders at this market valuation to increase the piggy bank. We want to do it in conjunction with deals that are non-dilutive.

Matthew Gordon: So, if we look at where you’ve put yourself in the market, where you’ve slotted yourself in, you’re looking at Explorers and Developers, pre-revenue. So, you’ve got to wait until they get into revenue before you can start issuing dividends to shareholders, right?

Trey Wasser: Well, that’s correct. I mean, as I said we have picked up a couple of producing Royalties, one on Jerritt Canyon this year. That’s going to be a steady, predictable Royalty source. Isabella Pearl has started to pay Royalties and over the next 12 months we think we’ll see a couple more that are better paying. When we have that Royalty income, and we will do about $4M this year. So we more than cover our G&A. We’re not earning capital at all. But a lot of that comes from the property sales, from the option portfolio, which would generate about a $1M-$1.5M this year. Royalty income will be about $1.5M and then we had a gain on the sale of a Royalty too. That is the next step for us, certainly to pay a dividend and I think you can look for that. It’s one of my goals for 2020 is to get this company established to where we have a couple more producing Royalties and that predictable revenue to not just do a one-time dividend program, but on going.

Matthew Gordon: That’s going to be a much more competitive environment where you’re bidding for people who are in production rather than companies which are in expiration and development because you know people want to sort of see there’s money coming shortly.

Trey Wasser: That’s true, but we have a couple of advantages. As I said a $3M-$4M deal for us is significantly it moves the needle. We’re not competing with Franco Nevada and the majors for that. If we sell them once in a while, we’re in the mid-tiers. We might be running into more junior Royalty companies but there’s only a couple of the junior Royalty companies that are actively adding to their portfolio. Some of them just sitting back with the Royalties they already have and maybe you know something here or there but not aggressively out in the market like we are.

Matthew Gordon: We’ve talked about focusing on Nevada. Will you focus on looking outside of Nevada anytime, in terms of this growth story that you want to start telling?

Trey Wasser: Yes, we did purchase this last year and this year. We first purchased a 1% Royalty and then another 2% Royalty on Wallbridge Mining’s Fenelon Project in Quebec. It’s a very exciting project and anybody who is following Quebec mining has probably heard of Wallbridge and this Fenelon Project. It’s just looking very exciting and I think it’s a project that will probably be taken over by a major mid-tier producer. I’m not sure Wallbridge will take it all the way to commercial production. They had been doing bulk sampling there so that’s one example. For producing Royalties, we will look outside of Nevada, if it’s a good jurisdiction. I don’t think you’ll see us buying something in West Africa, but we did look at a producing Royalty in Peru with a very good operator that we know very well. So, if we know the operator and if we view it as a safe jurisdiction, certainly for producing Royalties, we are looking outside of our Nevada comfort zone.

Matthew Gordon: Right and who’s assessing those deals, is that Jerry?

Trey Wasser: No, that’s me.

Matthew Gordon: Ok that’s you. Right so you’ll assess those deals. Ok fine.

Trey Wasser: And I have a couple of outside consultants that I use. One that’s more of a number’s cruncher and he’s worked for hedge funds and bankruptcy and work out kind of situations. I’ve known him a long time. So, he helps on the evaluation of the deals and then we have a couple of outside consultants that are kind of bird-dogging deals and bringing us all the time on an they get paid on a success fee basis.

Matthew Gordon: OK, so we’re Nevada, outside of Nevada if it’s producing, it is Gold. I mean most of the big Royalty companies are precious metal companies in the US. There don’t seem to be many niche Royalty or streaming companies outside of precious metals. Why is that? Is it the sheer size of the market or is it too complicated to do anything else?

Trey Wasser: Well I think if you look at base metals for example they’re not really very exciting , the excitement kind of goes along the electric vehicle, or the battery market. So, you’ve seen some run up there but not really enough opportunities to really exploit. Of course, Franco Nevada has some oil & gas interests that they’ve picked up, so they’ve added a little bit there. Gold Royalty space is the best way to invest in Gold. I mean if you look at the 10-year charts. Franco Nevada, Wheaton and Precious Metals and Royal Gold who’ve out performed SNP. SNP’s been on a pretty good run.

Matthew Gordon: Trey, get into it. To me, I like Royalty companies, everyone’s different. But remind people why you say that? Why do you say they’re the best way to invest in Gold? What are the risks that you’re taking away from the table?

Trey Wasser: Well, look, I love physical Gold and that’s my second favourite way to own Gold. If you just look at the charts and see that Royalty companies have outperformed Gold, handily over the last 10 years. where the regular Gold equities have not. The juniors have underperformed and the GDX is about even. What you get with Royalty company is a very low risk. Like Gold itself but with leverage. The leverage that you get is on the operating business. Because you’re getting the Royalty right off the top. You don’t have development risks as a rule. You don’t have construction risk, you don’t have expiration risk. All of that comes and you have all the expiration upside in an asset without having to pay for it because you’re taking your money off the top, not the bottom after they’ve deducted for exploration cost you know. The big challenge in mining is the CapEx cost that have to be maintained and what your true cost of production is when you look at exploration, the operating expense, the CapEx that’s needed and everything. The Royalty holder isn’t affected by any of that. That’s where the you’re banking on the producer doing a good job and having a good asset. So it’s a very low risk way of getting the leverage of equity in Gold without taking all the risk.

Matthew Gordon: That’s great. And as soon as you guys start paying out a dividend it gets more exciting, right?

Trey Wasser: I think so yeah. Everybody likes to see the dividends.

Matthew Gordon: Everyone loves the dividends. And how are you guys keeping your cost down? It sounds like quite a small compact team, but how do you remunerate yourselves? Do you do it say based on what we’re returning to the company? Are you paying yourself big salaries? How does it work within a Royalty company in the US?

Trey Wasser: Well first of all the way we operate, Jerry and I are the only two full-time employees. We have a part time CFO that is with an accounting firm and we have to give some of our directors’ a small amount for their audit committee work. But Jerry and I are the only two full-time employees. We have a salary plus bonus and the salary is, you can go look at the financials and see it, we both draw up about $150,000 a year in salaries. So for what we’re doing in the shareholder value and then the board decides, based on performance through the year, on both the share price and the portfolio, about paying a bonus. But you know a bonus’ have never been equal even to the salary. We operate very lean, we use outside consultants as I said for a lot of our bird-dogging deals and evaluating deals, and that way we’re not paying a full-time staff. We do have an office manager in Reno whose full time I guess you could say we have a third full time employee there.

Matthew Gordon: I’m very glad to hear it. That’s a very honest – the most honest answer – I’ve had to that question. And I’ve asked a lot of companies, so I appreciate that, I appreciate the low overhead. I can see where you’re at in your development. The rest of this year and the beginning of next year is a big time for you and if you can just get that next deal over the line, it should move the dial considerably. Trey, thank you very much for the introduction to your business. I’d like to catch up with you soon to see how things are going. Sounds like you just as you say started to see the benefit of the hard work over the last 3 years.

Trey Wasser: Listen, I appreciate the chance and the introduction to your viewers and let’s check back with each other here. I think what you see, in our news flow, is several deals that are in the pipeline right now. Different levels and a couple of, as you say, and a couple that could and should move the needle.

Company page: https://elygoldinc.com/

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Luminex Resources (TSXv: LR) – Gold Miner with a Tight Shareholding Structure & Access to Cash (Transcript)

Interview with Marshall Koval, CEO of Luminex Resources, a Gold Explorer and Developer in Ecuador. Part of Ross Beaty’s Lumina Group, Luminex Resources has a very experienced management team with a track record of delivering returns to shareholders. They have quickly established deals with BHP, Anglo American and First Quantum. We discuss all of this and address retail investors’ needs in detail in this interview.

Interview Highlights:

  • Lumina Group Track Record and Highlights
  • Strategy, Model and Thinking for building a large Gold & Copper Producer in South America
  • Assets and JV’s: Breakdown and Commitments
  • Share price: Changes and Causes
  • Mining in Ecuador
  • Enhancing Liquidity: How are they Promoting this Gold Company?
  • Company Financials and Remuneration

Click here to watch the interview.

Marshall Koval: Luminex Resources was the company we spun out in 2018 and we’ve got a large portfolio of assets, earlier stage exploration in Ecuador.  A bit different than the Lumina Gold story which is a development project, but we’ve got large scale exploration properties for copper and gold as well, and then we’ve got some world class partners that we JV’d with to do some of the exploration and we’re doing a bit of work ourselves on our Condor project.

Matthew Gordon: So you’re referring of course to the Lumina Group.  Why don’t you tell us a bit about that?  There’s a bit of a track record. You’ve been making money for people.  I think you’ve raised – you told me last time – $175M and returned $1.5Bn to shareholders. 

Marshall Koval: Lumina Group was founded in 2003 by Ross Beaty who took a view on copper.  So went out and acquired a lot of world class assets and it was sort of an option play originally.  And as time went on, you control these projects, you have work commitments and basically the long and short was raised about $175 million, like you mentioned, and returned $1.5Bn to shareholders.

Matthew Gordon: Obviously with Ross Beaty’s involvement that gives you access to capital and reputation as well, plus you obviously have delivered as a management team.  With Luminex Resources, it’s a relatively small market cap right now.  It’s early days.  You’re also involved in Lumina Gold. Where are you spending most of your time?

Marshall Koval: Right now it’s been about a 50:50 split for me.  We’re advancing the Lumina Gold Cangrejos projects towards pre-feasibility studies.  So there’s a lot of technical, engineering work, fieldwork, so I’ve been working on that, but also I’ve been front and centre on all these deals with BHP, Anglo American, First Quantum, that we have joint ventures within Ecuador.  The combined amount of those deals is about $140M committed to copper exploration.  So we’ve been running 2018 and 2025.

Matthew Gordon:  Why have you spun out Luminex Resources from Luminex Gold?  They’re both gold companies.

Marshall Koval:  Basically, our philosophy is we’re an exploration development group.  We tend to try to acquire large scale projects like the Cangrejos project in Lumina Gold, and basically the idea is to add value, derisk these and move these on to somebody that would build the projects.  It’s basically the same model as Lumina Copper.

So what we had is when Ecuador opened up their concession system and granted new concessions, we acquired – even though we’re a gold company – quite a few copper early stage exploration projects.  So by spinning Luminex out, we have a core asset in the Condor project which has about 1.4Moz of gold in Indicated and 2.5Moz in Inferred.  But we also had these early stage copper exploration projects, so rather than going to the market and deluding our shareholders, we went and did JVs with three major companies to explore these copper assets.

Matthew Gordon: Let’s get into that because I can see Condor, Tarqui, Pegasus, and Orquideas.  Do you want to break those down?  I think what our audience is really interested in is what you’re thinking, what your strategy is.  What are your plans for these? 

Marshall Koval: So these copper assets. We’re pretty opportunistic.  We had a lot of information in Ecuador and when the concession system option came up, we acquired all these projects – Tarqui, Pegasus, Orquideas and Cascas.  And then we did initial work ourselves.  We have a team of over geologists in Ecuador, so we did a lot of the basic exploration work beyond what was already known about these projects.  And we advanced them to the point where we actually didn’t go out and solicit companies to do deals.  This was all inbound. 

The first deal we did was with First Quantum on Orquideas and Cascas.  Right now First Quantum is in the field.  We’re the operator in he project but working closely with First Quantum.  We’ve got five drill holes in and about 1500 metres of drilling, so far.  So that deal with First Quantum we had to spend $38.5M over five years to earn 51% and they can earn an additional 19% if there’s a discovery and they carry us to a production decision.

Matthew Gordon: So they can earn up to 70% subject to them paying up for that and obviously getting through to construction.  But what’s in it for you?  You’ll get 30% of what?

Marshall Koval: There are two deposits – the Orquideas which is being drilled out and that’s to the north and then the Cascas to the south.  These are large copper anomalies we’ve identified with geocam and geophysics and they’re about 5km x 2km / 3km wide – both of them.

So basically if there’s a major discovery – and these are straight copper projects, no gold.  Then we’ve got with Ross’ involvement in our group, if there’s a major discovery we can participate in the 30% if it gets to construction, or we have the option to sell out that portion.  There’s a lot of groups – a lot of them are Japanese companies like Sumitomo for instance, that would look at buying a 30% interest in a major copper mine. So it gives us leverage to the upside, is basically the idea with all these.

Matthew Gordon: So explain those numbers.  So First Quantum put in $38.5 Mover the next five years.  They get 51%.  Are you putting in any additional cash?

Marshall Koval: It’s a straight earn in JVs, so after they spend the $38.5M they earn the 51% in the JV company, and then if they advance it through pre-feas, feasibility study and construction, we’ll carry it for the 19%.  And then when you get to 70%, that’s where we would have to put our pro rata in.

Matthew Gordon: So that’s great optionality for you on that deal.  That was the first deal.  Let’s go to the second deal.

Marshall Koval: So Anglo American is a bit different approach.  So on the First Quantum deal it was two specific deposits that had been identified.  Anglo took a broader scale.  So the Pegasus A and B is our largest land position in Ecuador.  Let me just say this – we’re the second largest concession holder in Ecuador and the Pegasus A and B is the largest concession that we have.  So we have about 135,000 hectares of mineral concessions and Pegasus is about 65,000 hectares. 

So Anglo’s view is a bit different.  They’re looking at a broader regional district sort of scale.  There’s upper porphyry and some gold showings that we’ve identified in the area.  So Anglo’s approach is more systematic, broader regional scale exploration.  So the deal we have with Anglo is they have to spend $57.3M over seven years, earn 60%.  And they can earn an additional 10% if they carry us to a construction decision. So right now they’re in the process of a lot of field geochemical work, they’re getting ready to fly a geophysical over the entire land package to look at perspective terrain.  And so that’s basically the Anglo deal. We’re really excited to have both these – and BHP too as part of.

Matthew Gordon: One, access to capital, but two, these are names that people trust as well.   It lends some level of comfort to investors. So that’s a slightly earlier stage project but again because we’re talking about seven years for this earning period and then you’ve got BHP.

Marshall Koval: So BHP is a deal we just closed in the last month.  Basically BHP… So let me back up.  Anglo is the operator on the Anglo deal.  First Quantum , Luminex is the operator and on the Tarqui project, BHP is the operator.  Tarqu’s on the area of Mirador, which is a copper mine that’s in construction right now.  So it’s in that ugly prospective copper mill, and this is a small land package compared to the other ones.  We made a discovery out there and it looks pretty promising.  It’s some of the best copper terrain that we’ve found in Ecuador through the work that we’ve done. 

So the deal with BHP is they have to spend $42M over six years to earn 60% and after that they can earn an additional 10% by spending another $40M, and that should take you roughly through a feasibility study if there’s some discovery there.  So basically that’s the idea.  These are large targets, large anomalous areas that we found in the field.  They were putting off risk to these first class partners to advance these projects.

These leads us – our primary focus after these three partnerships is our Condor project.  Most of these assets are in south eastern Ecuador.  The only one that’s stuck in the central area is Anglo American.  You can see all of our holdings on Slide No 5.  You can see where these different properties are in the country. 

Let me just go back to Luminex.  We just announced high grade discovery at Condor.  And Condor’s interesting because it’s a large land package, the northern part of the property is a thermal gold deposit and the southern part is gold, copper porphyry and we just made a high grade discovery at the camp zone and we’ve drilled four holes into it now.  So that’s pretty exciting.  We put a couple of press releases out in the last month or two, and we can get some details on that lately.  Right now we have one drill at Condor and we’re drilling at Condor, but we think we made a significant discovery beyond the known resources that have been reported to date there.

Matthew Gordon: So these are all relatively early stage projects in the scheme of things, hence the market cap.  Your market cap is quite low.  I guess the BHP explains the bump in the share price this month.  You went from $0.70 to $0.90.  I think $0.92 today.  So these partnerships that you’ve created, how long did they take to actually come into fruition?

Marshall Koval: These are big companies and these are complicated deals because basically you’re structuring the earning agreement, royalty agreements, KV agreement, assuming that you have a producing property.  So there’s a lot of paper and there’s a lot of negotiations involved, but generally they’ve taken nine months to 12 months to go from initial interest to negotiation closing of properties.

I want to add one thing on the… It isn’t just these deals that have moved the share price recently.  I think the discovery we made at Condor at the camp zone has also helped move the share price as well.

Matthew Gordon: Being what? 

Marshall Koval: So basically what we announced were three drill holes in the camp zone area and to give you an idea – these are near surface out crops.  Then we drilled down to 200 / 300m.  To give an example, in the first drill hole we drilled we had a true width inter hole of 30m that was 4.77 per ounce per tonne gold.  The second hole we drilled was a similar sort of thing.  25m at 2.49 g/t and within that there was inter hole of 9.6m of 6g/t gold.  So if you look at the mineralisation there, it’s pretty wide zones and it’s got some similar aspects to mineralisation that we see up at Fruta del Norte.

We just announced a third hole and that had 25 metre true width of 4.5/tg gold.  So these are structures that out crop at the surface and we’ve been able to define them down to a depth of 200m / 300m.  So right now we’re drilling those and I think that this discovery has a lot of momentum that can potentially move the share price if we continue to have success there.

Matthew Gordon: How much of your market cap would you attribute to the deals you’ve done with First Quantum, Anglo and BHP versus your own project?  How do you break that down?

Marshall Koval: Obviously there’s optionality to the resources that we have.  We have rightly four million ounces of gold at Condor.  Again, it’s exploration stage, sort of advanced exploration, not development.  But I think it’s really hard to break it down, but I think if you look at – when we first announced a deal with BHP, the share price moved up to about 85 cents and then the market settled back down.  I think most of the run – the $0.70 to $0.92 – had more to do with the camp zone.  Maybe we’re seeing about half of our value from the Condor asset and maybe the other half from these JVs.  It’s a hard thing to pin down but that would be my guess.

Matthew Gordon: And any more deals coming through?

Marshall Koval: We need to get inbound interest and it’s kind of interesting.  I think what’s happened in Ecuador is – as we all know it’s …

Matthew Gordon: Tell us about Ecuador because it’s a relatively new mining jurisdiction.  It’s mostly agriculture.  So how have you been getting on?

Marshall Koval: There’s been some historical mining, primarily for gold in areas like Zaruma and other parts of the country, but basically the country had a moratorium on new concessions being offered in 2008.  Basically they had punitive fiscal regimes, so that kind of shut the industry down and I think it hit the bottom basically in 2014 when Kinross decided to back out of the Fruta del Norte deal.  That was a world class gold project. 

I think what the government had was some budget of about $100 a barrel oil.  They’d primarily been oil producer with most of the economy besides agriculture.  And when that happened, when oil went down to $40M, $50M, in that range, it really blasted the economy of the country.  And Correa was the President of the time and he was actually the guy that shut down mining, and he realised that he needed to open mining back up because they needed foreign breadth investment, and that was the best opportunity to give it.

So if you fast forward, this was sort of 2014, things started opening up.  We were in the country around 2013 thinking things were going to get better, look at a lot of stuff, work with the government to tell them that they needed to improve their fiscal regime.  And so after the Kinross deal collapsed, Lundin Gold acquired Fruta del Norte and Lundin and several other companies pushed on the government to get a better fiscal regime.  So as we sit today, the fiscal regime is workable.

Matthew Gordon: What does that mean in terms of tax, royalties, etc?

Marshall Koval: Basically if you look at the effective tax rate in the region, a country like Chile has got the best fiscal regime and it’s 38% to 40% of the rents, if you like to call it that, of a project going to the government.  If you go up to Peru, it’s 45, in that range, and Ecuador’s up around the 50%.  So basically that change from… windfall tax is 70 per cent and a lot of other issues that Ecuador had, Ecuador was probably up in the mid-60s.  The fiscal changes that have been made, sort of made it so that major mining companies – guys like BHP, First Quantum, Anglo American, a lot of New Crest, a lot of other players, have come into the country and are comfortable enough with the fiscal regime to invest. 

Matthew Gordon: Can we just talk about shareholders, please?  I know you’ve mentioned Ross Beaty.  Obviously you’ve been working with him a long time, you guys have made a lot of money for yourselves, but also shareholders.  What’s the breakdown here for Luminex?  Who’s in it?

Marshall Koval: If you look at Page 6, that kind of gives you the stock info.

Matthew Gordon: Sure, but it doesn’t tell me who. 

Marshall Koval: If you look at management and insiders, we have about 24% of the company.  Ross has 15.4% himself.  I’ve got about 4% and the balance is the rest of the management team.  But also we have some institutions that have come into our last financing. 

Matthew Gordon: Who are they?

Marshall Koval: Mainly at the end of the US and also there were some in Dubai.  But basically what we have is a group of friends and family that have followed Ross in the group for quite a while.  So if you look at it from that perspective we pretty much know where probably about 50% of the stock is, is pretty close to the group.

Matthew Gordon: But the rest of it’s Canadian retail?

Marshall Koval: Canadian retail and US.  We just recently listed on the OTC.

Matthew Gordon: Has that made a difference?

Marshall Koval: We see a lot more activity in the US. The US has always been important.  Two of the funds that have come in pretty substantial ways in both Lumina Gold and Luminex are California based.  So that’s an important aspect for us. 

Matthew Gordon: You’ve got to move it up.  You need more volume, you need more liquidity, need more trading, hence OTC I guess, but what else are you doing to get this promoted?  I know when we spoke last about Lumina Gold, you were starting a process.  How are you doing that Luminex?

Marshall Koval: So Luminex, given that there’s about 50% that we know of that’s long-term investors with the group in the story, that doesn’t leave a lot of free float out in the market.  So one of the things we’re doing quite a bit is we’re marketing in Europe, the US and Canada and we’re targeting the retail investors.  I think that’s going to be an important aspect going forward.

Also we’ve seen some funds that we’re buying in the market.  We just completed a financing, and right now we have about $7.5M in cash on hand, so we’ve cash up pretty good to move things forwards.  We’re not out marketing, looking to raise money but we’re continuously… Scott Hicks and myself are continuously working with investors.  We have a large focus on retail investors now, so…

Matthew Gordon: When you say you’ve got a large focus on retail… What does that mean to you?  What are you doing?

Marshall Koval: Doing a lot of town halls. It’s kind of interesting and it’s mainly focused on retail investors.  We’ve got a pretty broad reach.  It’s not just the US, Canada, but we’re seeing investors in Europe participate in these.  We’ve had over a hundred people at a time, and so we’re reaching out continuously like that, we’re going to conferences.  We’re at the spot conference in Vancouver next week and we have a Blue Fair.  We’re really trying to get the story out as broadly as we can because I think we’re still in the early stages here.  Obviously every CEO you’re going to talk to is going to tell you that his stock’s undervalued but I think there’s real… even with the move up into the 90 cent range, we still have a $47M, $48M market in cap, and any one of these projects we have significant success on, will see a substantial move from this point.

Matthew Gordon: Where do you see the value coming in?  You’ve got some big names associated, they’re spending nearest down at $140M on some projects for you.  You’ll still be left with a reasonable chunk of the companies or the projects after that, but how much of this is Ross’ company and how much is the Board actually doing to making decisions?

I look at Anfield Gold.  Obviously that’s gone into Equinox along with a couple of other projects to create a super project, $800M market cap for Ross there and Equinox.  Lumina Gold is sitting at around $170M, $180M market cap today.  Luminex $35M, $40M. Okay.  So is it a case of you take these things through following a plan or, because of the nature of your business, explorer, developer, you’re a little bit more free flowing in that?  It’s a case of are there opportunities to maximise… How do you think about that?

Marshall Koval: I think the value drivers for us in Luminex is going to be exploration success, adding resources and making discoveries.  A good example of that would be the discovery of the camp zone.  It was never drilled. It’s right underneath our camp at Condor.  Geologists from several companies – I mean this project’s been around since the 80s – sampled over the area and we had one of our geologists see some interesting rocks in a road cut and started to focus on doing work.  He did sampling and trenching work.  So it was a brand new discovery.  The drilling was –  also I mentioned to you earlier – we have a discovery in there. Now given the size of it, you could have a potential for a million / two million ounce deposit.

Matthew Gordon: So it does create value, but I’m more interested in the decision making.  So Ross Beaty, big name and reputation.  He’s got access to capital, all that good stuff.  With Anfield, rather than grow it yourself, it was a question of “Well, we could or I can roll it into something over here.”  What do the shareholders of Anfield get out of the Equinox deal?”

Marshall Koval: I’m on the Board of Equinox with Ross and several other Board members.  That was the deal where we had the Curinga deposit and we had some other assets, and at the end of the day Curinga turned out to be a small project that will be a mine some day. But, you know, there’s a management issue.  It takes as much effort to manage a small operation like that as it does a big project.  So the idea there was Anfield was going to be the vehicle we used to build the gold production company.  That’s what Ross wanted to do.  But at the end of the day Ross put a deal together to form Equinox and we had about $50M in Anfield.  The idea there was to take the assets, the Arizona mine which was a brownfield site in Brazil and the Casa Mountain project in California, and advance those.  So Equinox became the vehicle instead of Anfield.  Today we’ve got two producing mines in Equinox.  We’ve got a third mine, Casa Mountain that’s going to be put into production soon. 

So that was the idea and that was the producing story. So if you go back to your question about the Board – we have a pretty sophisticated Board.  Myself and John Wright handle a lot of the technical aspects and John’s the ex-President of Pan American Silver.  He’s a technical guy.  He’s on the Board of Silver Crest and Aero Copper.  And Dave Farrell, for instance, he’s the capital markets guy.  He’s on the Board of Fortuna.  Don Shumka is on the Board.  He’s experienced audit committee guy.  He’s been on the Board of several large mining companies, and then we have Lyle Braaten who’s our attorney and he’s involved in government. 

So basically the mandate of the Board is ‘Let’s try to maximise the value that we have in these assets.  Let’s go out and explore.  Let’s find projects.  Let’s advance those projects.’  That’s measured, advancing these projects by derisking them and moving them along towards the development chain. 

So, if you look at the Condor project, for instance, with this recent discovery we’re planning on drilling 2300 metres here.  We’re having a second drill rig come to site and if that starts to pan out, then we start to look at this thing as a development project and put it on the path towards PEA.  So that’s where value will be created besides just outright discovery.

So then if you look at the copper portfolio, the BHP, the Anglo American and the First Quantum deals, that’s going to be large scale upper porphyry deposit discovery and given the prospective terrains, we think out of those deals you’ll see some sort of major discovery.  At least that’s what we’re hoping for.

Matthew Gordon: So how do you guys pay yourselves?  How do you remunerate yourselves? Incentivise yourselves?  You’ve only got 52 million shares here, so how does that work?

Marshall Koval: So when you look at it, the Board doesn’t get paid.  We get options.  The option grants are pretty modest.

Matthew Gordon: No salary?

Marshall Koval: Not for the Board, no.  Myself and the management team that run the company day to day get a salary, but if you look on Page 6 there, for instance, issued in outstanding shares, we’ve got 52 million after this last financing.  If you look at it on a fully diluted basis, it’s 55 million, and we don’t do warrants.  We’ll do a discount to market financing, so basically there’s not a lot of dilution and like I say we’re tied on options.  So really the upside in these financing… most of the management team participate in the financings and they have all the way through the various ones we’ve done – both in Lumina Gold…

Matthew Gordon: At market?

Marshall Koval: At market along with the other investors. 

Matthew Gordon: This is what fascinates me about some companies.  They just get it right. You don’t have many shares out.  What you’re saying is the cost of your money is cheaper than… You don’t need to do warrants, so you don’t do warrants.  You’ve got contacts. You’re talking to money from Dubai, talking to money from California.  You’ve got the institutions.  They all know Ross Beaty. They know your management team, so you’re not paying more than you need to.  This is really important for funding a company.

Marshall Koval: Let me take that to the next level because we have an anti-dilutive mine set and obviously when you’re an exploration group and you don’t have income from operations, you rely on the capital markets to finance it as you go.  But this last financing, we were over subscribed by more than $1.5M and we didn’t want to go there, so we cut it back.  Our philosophy is don’t go out to the markets and raise any more money that you need.  Given the success of the group and obviously with Ross’s leadership there, we have the ability to finance when we need to.  So we try to minimise shareholder dilution and, like I said earlier, management and Board members often take the financing and Ross is usually the lead order when we do financing. So that’s a pretty strong message to the market.  

Matthew Gordon: It’s a strong message to the market, and then top of that the types of deals that you’ve recently done with obviously First Quantum, Anglo and BHP in terms of funding projects and leaving yourself with a meaningful position at the end of it, that’s also great news for investors in terms of optionality. 

Fantastic on the money and the remuneration side of things.  You’ve talked to us about Ecuador and mining in Ecuador.  Do you think that the retail market understands the Ecuador story?  Most people don’t know it and if I’m looking at the chat rooms, forums, various social media, there’s not a lot of talk about you.  Why do you think that is?

Marshall Koval: So if you look at the Lumina copper story.  Ross took a view back in 2003 that copper at the time was $0.85.  It was going to go to two bucks, so he went out and he acquired ten really solid assets in mining friendly jurisdictions.  So in the initial days it was pretty quiet and they went on and acquired these projects.  We were in a building stage with both Lumina Gold and then we spun Luminex out, so we’ve grown in the investor market at  a bit under the radar as we consolidated things. 

Now we’ve consolidated our land position in Ecuador, the majors have come in and they have to do deals with groups like ourselves because all of the highly prospective properties in the country are in some junior ownership.  So basically what you have is a lot of these companies have to come to us.  So basically we’ve been quiet because we’ve been in the building stage.  Now the story’s changed.  We’ve got our position.  We’ve got the prospects.  We’ve got funding in place.  We put off a lot of exploration risk up in these major companies that are really good technically.  They can move our projects forward.  We can focus on Condor. 

We also have three other projects that are copper plays that we’re continuing to do primary stage exploration work.  We’re in a really good position to move forward and not dilute the shareholders.  If all these JVs go through and $140M is spent on these projects and there’s discoveries, we would have diluted the hell out of our company to raise that kind of company to do it ourselves.

Matthew Gordon: I think its smart.  Obviously mining copper, mining gold have similar skill sets.  You’ve got all the relevant skills set you need in house.  Can you give investors and retail investors, new investors, reasons that Ecuador is a good place to be and why you think the way that you’ve structured these deals is going to work?

Marshall Koval: Ecuador is the last unexplored, geologically significant terrain in Latin America and probably the world.  There hasn’t been a lot of systematic exploration in Ecuador because basically when the moratorium that happened in 2008, Ecuador set up the majority of the super cycle that we went through and basically it was shut down for business.  Now it’s open for business, from a political risk perspective I think the best indication that it’s a viable jurisdiction is that all these major mining companies have started to come into the country. 

There’s two mines that will put into production by the end of this year – Fruta Del Norte is one and then Mirador is the other.  Mirador is owned by Tongling Mining as the operator and a partner.  Mirador is a large copper porphyry deposit and Fruta Del Norte that Lundin Gold has is a large underground gold deposit.  The prospective nature of Ecuador has come to fruition with these projects being built and there’s a significant pipeline of discoveries in the country. The Cangrejos work that we’re doing has a real good project and there’s a lot of interest. 

So Ecuador is now a mining jurisdiction and there’s growing pains that go with it.  Both the government’s learning, communities, dealing with the communities.  We’re educating communities along the way. So that’s part of the story. But geologically it’s great exploration.  I’m an explorationist by training and I haven’t seen as much prospective ground anywhere else in the world that hasn’t been systematically explored. 

So then if you go for the reasons that it makes sense for Luminex within the country – we’ve got $140 million of non-diluted financing coming from our partners and we have four million ounces of gold on the books already at Condor, and we’ve made a major discovery at the camp zone.  And then like you were talking out before, we’ve got a management team that’s been there, done this before.  Our business strategy is to add value to these assets, not be the producer, move them onto somebody to put them into production and then exit. 

So if you look at the Lumina copper story, that’s what shareholders did really well when we exited these companies excessively.  So we’ve got the ability to finance.  We’ve got the technical team.  We’ve got a really strong in country team in Ecuador, so I think we’ll be successful in advancing these projects, and I’m really excited about the prospects in Ecuador.

Matthew Gordon: You need liquidity in the business.  You need a bit more turnover to drive this price up.  What type of investor are you looking for?

Marshall Koval: I think we’re looking for the investors that understand the high-risk nature in Luminex exploration.  I think they understand being patient, that discoveries will reward shareholders.  So I think we’re starting to see a positive goal move recently.  When we went into the country a lot, we’re looking at $1,100 or $1,200 goal.  We’re up in the $1,400 range now.  We haven’t seen junior equities like ourselves move up as much as the gold price recently as a general rule.  So I think we’re still at an early investment stage, but if a shareholder comes in and as we derisks these projects makes more discoveries, we should see upward movement in a positive build it price environment. Plus also we have the optionality on copper.

Matthew Gordon: Do you think liquidity and volume correlate with long term holders?

Marshall Koval:  If you look at the float at the stock, we do have a lot of long-term holders and that’s why you don’t see large volumes.  If we get three hundred thousand shares trading in a day, that’s pretty good.  So the liquidity issue is definitely something that puts a bit of a lid on the upward movement right now.  But positive news, we’re moving the stock and the more we reach out and get the story out to the broader retail base institutions, we should see things improve.

Matthew Gordon: You may have to consider issuing more stocks sooner?

Marshall Koval:  That’s the issue that we’re talking about earlier, that non-diluted mind set, but you’re right.

Company page: https://luminexresources.com/

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Roxgold (TSX: ROXG) – Little Fish Taste Sweet (Transcript)

In our second interview with John Dorward, CEO of Roxgold (TSX: ROXG) he digs in to the strategy and thinking behind the company’s approach to Gold mining and operating Gold mines in West Africa.

What is their exit strategy? Will their plan to have 3 projects plus one world class asset, a game changer, work out and how? What are their priorities? Can investors get cash in hand or do they prefer having cash reinvested by the company at higher and higher rates?

We discuss these topics and more:

  • Drill Announcement
  • Piecing together the Company Strategy
  • Fundamentals of Mining in Africa and the Competition in the Country
  • Possible Gold Market Prediction

Click here to watch the interview.

John Dorward: Roxgold is a development and an operating Gold mining company. Our principal asset is the Yaramoko Gold Mine in Burkina Faso, which Roxgold discovered in 2011 and put it into production in 2016. So it’s been in operation now for three years. It’s a very profitable, very good operation and has been a strong underpinning source of cash flow for our company. And we’ve just made our first significant investment in terms of growth by buying the Séguéla Gold project in Côte d’Ivoire from Australia’s Newcrest Mining.

Matthew Gordon: So let’s talk about that. I want to paint a picture here for investors who are watching this on Crux Investor. You outlined a strategy to me, which I thought was fascinating. You thought, we’ve got an asset, rather than work out what you’ve got in the ground, you got quickly into production. And that’s given you the cash to be able to look at additional acquisitions. But it was also out of necessity because of the mine life at Yaramoko is what it is. And we can maybe get into that now. Tell us a little bit about Yaramoko. What you saw there, and perhaps what the restrictions were in terms of things like mine life?

John Dorward: So, I mean, Yaramoko is really a great asset. It’s really, I think for a company that starting out is a junior with a development asset, Yaramoko is exactly the sort of asset that you want to find. High-grade. So extremely high-grade, double digit Resource grade. We’ve been mining high-grade now for three years. The interesting thing with respect to the mine life is that we published a Feasibility Study in 2014 which showed that we had a 7 year mine life at 100,000oz a year. So 700,000oz of production. We’ve been in production now for three years. We have produced over 350,000oz and we still have a 7 year mine life, with eight 830,000oz of Resources.

Matthew Gordon: So you’re continuing to drill out and step out, and work out how you can develop that body there. You mentioned when we spoke last, there are a couple of other targets you’re looking at in and around Yaramoko. How’s that going?

John Dorward: It’s going well. So we’ve had a very active program of generating new targets, which we are setting up to start targeting and drilling in the second half of this year. I think for, as with a lot of projects, the brownfields potential is always the most compelling. If we can find another deposit like Bagassi South or the 55 Zone, which are currently in operation, then the returns to our shareholders and the company should be very good. So that’s motivating the search in and around where we’ve got infrastructure already.

Matthew Gordon: So let’s get into some numbers there with Yaramoko as people understand that, because I have talked about short mine life, but you’re extending that out slowly and surely. You’ve got a good team there, I’ve looked at the track record of delivering. Mining’s mining. It’s tough, it’s hard work. There’s no kind of easy shortcuts here. But you’ve been building that out. You hoped to grow that and extend the mine life even further. So what are the things that you are looking at with your team on a daily basis? What’s the things that are keeping you awake at night in terms of needing to deliver?

John Dorward: Really continuing to deliver consistent production is the key for us. So if you look at our track record, we’ve tried to establish a record of under-promising and over-delivering. I think if you look at our first two full years of production being 2017, 2018, both years we increased our guidance and then came in above the top end of our guidance range. This year we’re guiding to what would be record production at Yaramoko. The guidance range is 145,000oz to 155,000oz. We’re very much on track to deliver that guidance, again.

Matthew Gordon: Yeah, I’d encourage viewers to go to Page 4 of your current PowerPoint. It’s got some quite interesting numbers on there which backs that up. So, it’s been a cash cow for you. You created enough cash, I think shareholders should be happy with what you built there. It’s enabled you to have enough cash to look at the second asset, which is Séguéla. Why don’t you tell us a bit about what you saw there and why you’ve gone for that?

John Dorward: It really plays to, I guess, our real strategy, which is to offer per share growth in both Resources, Reserves, production, but most importantly, earnings and cash flow. Slide four of our current presentation I think is a good starting point, where it shows on a per share basis how we’ve gone and it’s some pretty impressive growth in terms of production and especially Resources. So what I think happens with a lot of mining companies, and this is sometimes why I think investors may have a bit of a jaded view of the mining sector, is that the mining companies chase growth at pretty much any cost. And a lot of that comes with issuing shares to acquire new development assets or new producing assets. And we think that it’s very difficult to deliver long-term sustainable value in doing such a way, because if you’re buying someone else’s producing mine or you’re buying someone else’s development projects, they’ve probably surfaced a lot of the potential value. We would like to do that ourselves. We believe we have a team, we have a good cash flow. So we’d like to take an asset maybe at an earlier stage, invest capital in it, invest the expertise, de-risk it, move it along and ultimately make it more valuable.

Matthew Gordon: So how do you do that? Because obviously no one sells good assets. Right. Or if they do, they don’t sell it cheap. So you’ve got to come in at an early phase. Makes sense. But there’s a lot of crap out there, too, right? So what are you looking for that says this is the one out of the hundred that we’ve looked at?

John Dorward: Yes. Well, you’re absolutely right. There is a lot of crap out there. We’ve popped the hood on a lot of assets, both operating and development and exploration assets. And to be honest, often not as advertised. And I think that’s something that we’re concerned about. With Séguéla, which is our first acquisition, I think is a really good case study to understand how we look at  opportunities and what we want to do. It came out of Newcrest. Newcrest is Australia’s, as many people will know, Australia’s largest Gold producer. It’s the third largest Gold producer in the world and really has a strong exploration focus. I mean, Newcrest has discovered the majority of its assets over time. So it’s really focused on exploration. Exploration is held in high regard.

Matthew Gordon: So why did they sell it to you?

John Dorward: So it probably looked like it didn’t make their size threshold. As I mentioned, the third largest Gold company in the world. The asset now, we just published a new Resource at nearly 550,000oz. So I guess they couldn’t see visibility to the 5 million plus ounces that a company of that size needs to be able to justify the effort.

Matthew Gordon: But you’re not looking for that? Certainly not day one.

John Dorward: I’d love to find it!

Matthew Gordon: Sure, that’ll be nice. But this is what I’m trying to get at, so investors get a sense of what your thinking is here. You’re not looking for world beaters, you know, global, scale assets. You’re looking for a mid-sized, profitable, low operating costs, reasonable AISC to this and piecing together this picture. So tell us about the thinking. That’s what investors want to understand. How do you think about these things and why does that make sense and how are you going to deliver it?

John Dorward: Sure. So I think we have the the belief that little fish tastes sweet. Yaramoko, and we think it’s not done and we’re finding more Gold there, but it’s not a world scale, world-class scale asset, although very profitable. So we’ve taken that model and said okay, ‘this is interesting. We believe this is an interesting model. This is a way that we can operate in the competitive landscape and still add value on an appropriate risk reward basis’. So buying Séguéla at just north of 500,000oz now for $20M cash. And that’s very important to us because we were able to pay cash that we generated at Yaramoko.

Matthew Gordon: So no dilution?

John Dorward: No dilution.

Matthew Gordon: And I know the share count has barely risen in the last two years, two and a half years.

John Dorward: We haven’t issued shares, in terms of a traditional equity financing, since early 2015. And we want to keep it that way. We want the owners of Roxgold to enjoy increasing share of Resources and Reserves and profitability, and earnings and cash flow, as opposed to having to share that with new shareholders who’ve come in on the back of a dilutive financing. So, Séguéla presents itself as an opportunity we can get into at a reasonable price. It’s $20M on the barrelhead that we’ve paid to Newcrest, another $10M payable upon first production. So we think the interests, the risk is shared there. If the project doesn’t make the production hurdle, then we don’t pay Newcrest $10M. If it does, we’ll be happy to pay that $10M.

Matthew Gordon: But, okay, if you don’t, you’re $20M into this, albeit with cash you’ve generated, it’ll be a non-dilutive exercise, but why is $20M a good price?

John Dorward: Well, we believe it’s an excellent price. So we believe it, as I say, Newcrest were motivated to sell because they didn’t see the long-run pathway. We can still have a very good asset. Anything above what we’ve found today. So we believe today, as it currently stands, Séguéla is an economic asset and we’ll be the next Goldmine that Yaramoko builds.

Matthew Gordon: But the Resource is half a million right?

John Dorward: Absolutely.

Matthew Gordon: I normally wouldn’t look at anything under a million. So what are you seeing?

John Dorward: And to be honest, I think that’s the sort of thinking that we’re trying to take advantage of. Perseus has just built a new project in Côte d’Ivoire called Sissingué, which has been very successful for them. It’s actually a small Resource and a lower-grade than what we have today, at Séguéla. So I think there’s a good case study that this can be worthwhile.

Matthew Gordon: Well, case studies, neurology, whatever. That doesn’t answer the question about what you were looking at. What are you seeing over and above the data that Newcrest has given you, which says, I think we can make this bigger?

John Dorward: Yes. So we see, the Resource we’ve put out, 530,000oz @2.4g will get bigger from the recent drilling that we’ve done. So we’ve done some additional drilling recently in the last few months over and above what’s included in that Resource. And we published that earlier this week.

Matthew Gordon: But that is a kind of post the event thing. I’m intrigued by again the thinking. So you agree $20M plus $10M with the data you had, the drill results that you inherited or you were allowed to look at before you decided to make the decision. What did you understand that others didn’t?

John Dorward: Well, I think we understood I think it’s probably buying option value at a reasonable price. When I say reasonable price, I mean, we bought a project that we thought would be economic and we could make money off, off what we saw if it didn’t get any bigger. 530,000oz, 550,000oz doesn’t ring a lot of bells for people. But when you come from a company of our size, it’s still a meaningful increase in production. So we’re realistic about where we are and how big we are. So we saw our base case was squared away with an economic asset. We then saw that there was a series of other potential deposits that Newcrest had done work on all around Séguéla. And if you look in our presentation, you’ll see a map with concentric circles. So within 10 kilometres of the intended deposit, which is the current deposit that has a Resource at Séguéla. There’s over a dozen targets that Newcrest has delineated, some of which are quite advanced, mainly Boulder and Agouti. We put those results out earlier this week and it’s from additional drilling that we’ve done, and you see very attractive, high-grade over broad intervals close to surface. So we’re very confident that some of these…and we were very confident when we bought the project.

Matthew Gordon: So that is page 17 of the PowerPoint.

John Dorward: That’s right. So if you look at that. So we were very confident that some of these additional satellite targets would make the grade and become additional feed sources for a central mill. So it wasn’t a question that we had to grow Antenna, the one with the Resource. It didn’t have to make that any bigger. What we wanted to see was some of these additional come in that would improve the economics.

Matthew Gordon: Would you have done that deal if you had to borrow the money?

John Dorward: Yes, I think so, yeah. I think if we had the borrowing capacity, I mean, we’re relatively agnostic to capital. If you borrow the money, you have to repay it. We have a relatively modest gearing level, so I’ll be able to do that.

Matthew Gordon: But there’s a very different conversation with the shareholders, you’re going ‘right, I’m borrowing some money, diluting the company down here’. I appreciate your market cap is where it is. But versus actually ‘we’ve got the cash, we’re going to give this a go because the optionality looks good to us’.

John Dorward: Yeah. I think that’s right. And I think being able to go to Newcrest and say, ‘here’s a cash offer’. I think that was a competitive advantage for us.

Matthew Gordon: You could close the deal a lot quicker.

John Dorward: Yeah. And we always look at where we sit in the competitive landscape. So we think we’ve got an area that sort of flies under the competition of the larger companies, even sort of the mid-cap companies that are well capitalised are probably looking for projects bigger than us. And I don’t want the viewers to think that we’re deliberately looking for small projects. We just think that on balance, there’s probably more opportunities for us –

Matthew Gordon: – and less competition. And with less competition comes, the price doesn’t get inflated.

John Dorward: That’s right. And then Newcrest, and I don’t know what other offers they received, but I imagine it would have been offers from very junior companies with a lot of script in it. So Newcrest would have ended up being a large shareholder of a junior without a cash flow. And then really sort of hostage to the success of that company being able to finance and take the project forward. With us, It was a clean exit. We’ve known the Newcrest people very well, and I think they they’ve seen what we done at Yaramoko. And I think for a large company, and especially one like Newcrest, leaving a good legacy of where they’ve been is important. So they want to see it go to a good home. People who will be good operators, good stewards. And we’ve been able to demonstrate that in Burkina Faso. The minister for Mines of Burkina Faso, actually wrote to his counterpart in Côte d’Ivoire, giving us a recommendation and endorsement.

Matthew Gordon: Always good. So Newcrest, are they sitting on more assets in West Africa that you’re aware of?

John Dorward: They still have a joint venture position with Barrick that they inherited, part of the Randgold acquisition.

Matthew Gordon: And what’s that doing?

John Dorward: I’m not really sure, they don’t talk about it a lot, but I’m always interested to know, to learn more.

Matthew Gordon: So are we! Okay, so that helps us understand a little bit about your thinking. The small fish tastes sweeter. And you think you’ve got the team to be able to extract the value there. And there’s a big list of things to look at in that portfolio, that come along with Séguéla.

John Dorward: That’s right. I mean, if you go forward. We’ve talked a little bit about what attracted us to the asset. If you roll forward over the next couple of years. So, we will deliver a Preliminary Economic assessment later this year. And I think the opportunities that, in talking to analysts and investors who are active in Roxgold, a lot of them are still carrying these assets at $20M in their valuation, what we paid. So I think when we table a P.E.A. (Preliminary Economic Assesment) and not to to front run what that will look like, but I think it’s going to to be better than $20M.

Matthew Gordon: Well it’s interesting. People have different views of PEA’s, in terms of their accuracy and the relevance of them. So, yes, some people might like it. Some people may wait for the next step. Okay. Let’s talk about…before we talk about drill results, we’ll come onto that in a second. Your share price. You took a big hit. We talked about this in the last conversation. We’ll put a link up to that interview. But let’s talk about that here. The share price took a bit of a hit because of some selling, you believe? Why don’t you tell us about that?

John Dorward: Yeah, look, I think we’ve actually recovered a little bit in recent…last week or so.

Matthew Gordon: You have. I want people to explain…because if they look at the chart, they’re going to go, ‘oh, there’s something going on here’. But it’s explainable so why don’t you.

John Dorward: Absolutely. So, it’s been quite an eventful 12 months for Roxgold in terms of its share register. Probably a lot of your viewers would have seen this rippling through junior mining companies when M&G lost their Vanguard mandate in July of last year. And that went to Wellington. And we’ve, and I think we might have talked a little bit about that, so that was announced, I think in July last year when we were trading at a point $1.40. And we’re not looking to make excuses, but when you look at the share graph performance, basically from the day of that announcement, it trailed from a $1.40 down to $0.70 or thereabouts. As the stock…as that overhang leaned on our stock. And that is a little bit of a subtle difference that happened, too, because we historically have been a fairly thinly traded company. So we’ve got a good number of very long-term loyal shareholders who own big chunks of Roxgold and don’t sell them and don’t buy more, don’t sell more. They’re happy with their position. So we’ve had a lot of…we’ve had limited trading. And so when you have your second largest shareholder loses its mandate, and everyone expects it to be sold, which it subsequently was. That’s a bit of a problem for you. So that predictable response, share price down, that cleared in late January. So there was a bought deal…a deal done and a block traded which went to a lot of good homes, good long-term, strong hands. And that really marks the share price which has turned around quite a bit since then. And that’s been very helpful for us. And what that’s also done is it’s really increased the velocity of our trading. So, our share trading has gone up considerably. And the up-shot of that is interesting because one of the one of the key structural shifts in the junior Resource market has really been the rise of passive investing. And that’s that’s not just junior resource companies, it’s across the board.

Matthew Gordon: Yeah. We’ve talked about them in previous interviews.

John Dorward: We’re well on track for inclusion in the junior ETF, the GDXJ at the next re-balance.

Matthew Gordon: How do you know that?

John Dorward: Well, so you look at the criteria for entry and it’s pretty straightforward. You need a market capitalisation of greater than $150M U.S. So that’s a check for Roxgold. And you need to have $1M…an average of $1M per day traded for three consecutive quarters. Now they’re not calendar quarters. So this current quarter finishes in August. But we’ve already cleared that hurdle for two quarters. We’re halfway through the third quarter and we’re trading at over $1.5M U.S. a day. As we speak.

Matthew Gordon: That’s a big deal. The GDXJ is a big deal.

John Dorward: It is quite a big deal because you’re looking at a significant new shareholder buying onto the register. And also that facilitates other shareholders I think who may be looking at being tied to the index and then increasing our liquidity.

Matthew Gordon: Right. Okay. Well, I hope that comes because I think for a Retail Family Office and High Net Worth, that’s a big deal. It shouldn’t be understated. Okay. So, we will watch out and see if that happens. Now, generally you…I’m looking at things like you’re AISC, your overheads, your cost and your G&A, all of that good stuff. And I always ask the CEOs, in terms of what do they think juniors should be paying their board, the management? And how do they remunerate each other? Is it incentivised on deliverables? Or is it ‘actually, I’ll just take a big salary here’. How do you guys look at that? How do you approach that?

John Dorward: So I think I mean, and there’s a lot of commentary on what’s the appropriate –

Matthew Gordon: – Quite rightly.

John Dorward: Absolutely. I know it can be a hot button item for a lot of people. With Roxgold, we have a combination of fixed and variable pay. And really it’s, fixed pay is a salary and the rest is really to be put at risk. And there’s two components to the risk base salary. There’s the short-term and long-term. Short-term is really set around delivering metrics. So for myself and for my team at Roxgold. We’re incentivised on on a variety of metrics. Safety is first and foremost. Production targets, making sure we hit various milestones in terms of developments.

Matthew Gordon: Who sets those?

John Dorward: Those are set by the board.

Matthew Gordon: So the board set the targets by which they are remunerated?

John Dorward: No, no, so the board don’t have those sort of targets, this is for the executive team. I happen to be on the board but this is for the executive team.

Matthew Gordon: Got it. Okay. I understand.

John Dorward: So you have to deliver. And if you…and there’s a range and if you don’t deliver, then you don’t get that component of your short-term incentive. And then on the long-term incentive, is essentially fully tied to shareholder returns.

Matthew Gordon: And who watches the watchers, as it were? I’ve been talking to a company, let’s say, in the last two weeks to keep it vague. They have a little bit of production. They have a market cap of circa somewhere between $200M and £300M. And their board pays themselves as much as the Kirkland Lake board. And I’m like, wow, that’s pretty ballsy for a low revenue business. We got a lot of communication from investors saying, well, ‘what are the rules? Who manages that. Who oversees that?’. Because people forget to read the prospectus when they’re putting their money in. If there’s a private placement or if there’s a fund raise of any description, I mean, it’s just interesting how juniors manage that.

John Dorward: Yeah. So I guess the ‘who’s who’s watching the watcher’ and it’s not an exact science. But I think the rise of the proxy advisor has been interesting in recent years. I’m sure a lot of your viewers are aware, a lot of funds are advised by proxy advisors. And these proxy advisors comb through the management circulars and annual reports to see what the the pay mix is. And they basically have a recommended approach. I have a template and that’s largely in line with what I was saying. So there’s things that they don’t like. They prefer whole share units over options because they’re less dilutive. Things like that. They want to see performance metrics that, if your company outperforms its peers set then that’s good. If it underperforms, then there’s less reward. So they want to see that the management team make some gains and the shareholders and the company is doing well and feels them pain on the on the down side.

Matthew Gordon: We’re here to help investors understand why they should invest in Roxgold. So let’s get back to that picture painting. You’ve got Yaramoko, you are enhancing that, you’re continuing to work and extend the life of mine. Very high-grade, very low AISC. It’s a good, solid project. And you will keep sweating that. And it’s producing cash to all you…give you the freedom to do things. You’ve just bought Séguéla. You like what you see. You explained why you bought it, why you paid the price that you do. So how do those things set in terms of your vision, the complete picture, the overall picture of what Roxgold could be. Without getting into the, ‘we’re going to get into development, etc. We will never sell’. Don’t do that. Do the reality. What are the options for you if you build this out the way that you could?

John Dorward: Sure. So the first and foremost is to try and make as many things as you can, put them under your control as best as you can. So there’s a lot of variables that we can’t control in our business, price, price of Gold, whatever. But what we can control is our capital structure, to a certain extent. And for us that’s very important. And on the theme of the ‘why we went to Séguéla’, the beauty of this project is we can build this out without raising another dollar in equity. And that’s as I said, we paid cash because we didn’t want to issue shares. From cash on their balance sheet and cash from Yaramoko and probably a combination of a re-cut financing or project finance arrangement, we should be able to build that Séguéla without going to our shareholders and asking them to dip into their pocket to fund our growth. And I think that’s important. So that’s really, sort of, set in stone for us. That’s what we want to do. So ideally, we would like to find a third project. And if we could rinse and repeat the Séguéla style of experience, we would do that. Because I think we could then schedule that to come in after say Séguéla. And again, if we could do that by minimising or avoiding dilution totally, and then use cash flow from Yamamoko and Séguéla to then build that, we’re actually starting to look like a real business as opposed to a mining company because we’re taking earnings, genuine cash flow and reinvesting at an increasing return on investment.

Matthew Gordon: That’s what interests me. That’s what interests me when we talked last online. The model was different. It seems to be a business which understands the needs of investors. You’re not asking them to continually fork out or diluting them. You’re creating your cash to give you optionality, which is great. Are we going to see dividends at some point?

John Dorward: So an interesting thing, a book that I’ve read, and I’ve read it a couple of times now, is Outliers. You may be familiar. It really talks about CEOs who have been very impactful and tries to sort of divine what was different about these actors or these CEOs who really compounded earnings and made extreme returns for their shareholders. And one of those is really, they don’t typically pay dividends. They favour buybacks. So that the form of return of capital to shareholders is buybacks. But what they do is they take the earnings from their business and they reinvest those earnings, allocate that capital into future growth. And that’s what we were looking to do. So I don’t think it’s a new idea. Certainly not a new idea that we’ve come up with.

Matthew Gordon: No, but it’s important for people to understand the way you think, because there are different ways you can come at this. Some people look at cost cutting exercises, some reinvesting in infrastructure, dividends for some, buybacks. Effectively, same thing. So. Yeah. Okay.

John Dorward: So my main job, the principal job that I have is really allocating capital. Now when you’re a single asset, as we were with Yaramoko, it’s pretty difficult. So for a man with a hammer, every problem looks like a nail. So you drill around and you drill Yaramoko. So now with Séguéla coming on, we’ve now taken our first step into being able to really establish a competition for capital within Roxgold. So the expiration team at Yaramoko needs to be able to justify why their targets are as good, if not better than the targets at Séguéla. Then we can adjudicate with our Vice President of Exploration, Paul Weedon, and direct the capital to where we think the best return is, both in terms of absolute returns, sort of temporal like ‘what’s the faster path to a return’, etc. So I think that’s really set up an interesting dynamic for our company that we now have the opportunity to direct cash flow in to different directions.

Matthew Gordon: Absolutely. It comes back to remembering. I like the fact you said you’re not a mining company. That’s great. One of the very few people to recognise this in this space and what they’re in existence for. I like the approach to growth capital. It’s a question of what’s that eventually going to mean to new people coming in and existing people, shareholders. How do they see a return? How are you going to get them that return? So that answers this question of, ‘well, maybe I should put my money somewhere else’. So why stick with you? Why come into Roxgold?

John Dorward: I think there’s two paths. So in my career, generally, the happiest path to realising returns has been to be taken out.

Matthew Gordon: Well, is that true these days? Because the multiples are not what they once were. So what would you think they would be?

John Dorward: Well, I think that’s because we’re in a cyclical business. So for me, the biggest returns come from being able to work within the cycle. So it’s classic. I mean, it’s easier said than done. Buy low, sell high.

Matthew Gordon: You’ve done it a couple of times I note.

John Dorward: Yes, that’s right. So we have. So we’ve had three exits. One I’ll always characterise as an honourable draw and two, which were, I think, very successful for everyone involved. NPI mines back in the early 2000s and Frontier Gold, had a very good team there. I worked with some very good mining professionals. And Newmont acquired Frontier in 2011 and they bought a really good project. But it was a good time to sell a project.

Matthew Gordon: But you weren’t CEO then. You weren’t running that. You were part of a team. So today, what do you think you need to create to put yourself in a position too, if you wanted, be taken out?

John Dorward: So my whiteboard has three projects, three operating projects on it. And then a potentially world-class scale asset in the future. So we’ve taken our step towards getting two of those. So we’ve got our second mine, so sequentially we’ll build that. I would love to find another Séguéla or something similar, hiding in someone’s portfolio that they don’t love.

Matthew Gordon: But where’s the bit where you are making investors money? Because spending money on stuff, great. How does this three plus one world class asset convert into a big payday for investors?

John Dorward: Well, I think so. I mean, I think compounding those earnings and making sure that our share count, if our share count of stay tight, then those 374 million shares that we have on issue today are earning a lot more cash. Now, I think you get down to a debate. Maybe it’s a bit more philosophical as to whether people want cash in their hands or whether they want to have that cash reinvested and continually growing at a higher and higher rate.

Matthew Gordon: I’d say both because it mitigates their exposure.

John Dorward: No, that’s right. So I think so for us, we think as long as there are opportunities to continue to reinvest capital at sort of the returns we expect to see from Séguéla and project number three, we would recommend continuing to do that. I would like to ultimately have an asset that’s in the pipeline that has the potential to be a real game changer. And that’s probably taking some geological risk and investing in it and and moving along. And and ultimately… I mean, one of the case studies that I liked to look at is was Redback A very successful company, made a lot of money for its shareholders, had a good mine at Chirano in Ghana, doing around 200,000oz. Then they had a massive projected Tasiast in Mauritania. It eventually proved irresistible to Kinross. And they came in and paid something in the order of, I think, $8Bn dollars. So the shareholders who were sitting in Redback 5 years earlier probably didn’t envisage an $8Bn payday. But I think if you get the timing right and you’ve done a good job building a compelling business.

Matthew Gordon: Well, obviously that’s the dream, because that’s a really good example. Putting today’s language, what are you trying to be? I mean, an $8Bn dollar company from where you are on today, that’s… you’ve got a ways to go, right?

John Dorward: Yes. But I mean, I think to be a $5 stock. Roxgold needs to take its 374M shares to around 1.6Bn-1.7Bn. Now from a +$300M market cap. Now, that may seem a little ambitious, but from what I’ve seen in the past, when the market cycles in your favour, then there’s the opportunity to make an outsized return. And that’s what we’re sort of looking to do. So we don’t know when or if that will happen again. If history is any guide, it will happen. Just hard to predict when. So what we’re going to do in the meantime is build a company that will be irresistible, both to investors along the journey and also potentially a large acquirer in the future.

Matthew Gordon: Okay. Thank you. Let’s talk about the future. The last time you wouldn’t give me a number about the Gold market, because you’ve been around too long. You know not fall for that one. But the Gold market since we spoke has started moving. There are some signs that it’s heading the right way. You talked about timing a second ago. How long do you think this cycle will last? Or do you think it’s just unpredictable these days?

John Dorward: Look, it’s definitely unpredictable. So I would generally stick to my practice of not providing number, certainly not numbers, and certainly not times, but I think as broad direction of travel, it looks extremely positive for precious metals. I think we’ve seen an operating…

Matthew Gordon: $1,800 bucks?

John Dorward: I think that’s well within the range. I don’t know when, but if you look at Gold in the 2000s when it came off its lows, around $250 at the turn of the millennium. It ran pretty strongly up and then immediately around the GFC, Gold didn’t perform very well at all. And then we had a bunch of radical action and then Gold took off. And then it’s come back down again, but still pretty high. I mean, North of $1,400 historically was not a bad Gold price. But I think as we see liquidity start to unfold, Central Banks looking after their balance sheet and maybe some normality return, then Gold stands a very good chance of seeing new highs.

Matthew Gordon: It’ll be happy days if it does.

Company page: www.roxgold.com

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GoGold Resources (TSX:GGD) – “One of the Best Assets I’ve Had in My Career” (Transcript)

We recently spoke with Bradley Langille, President & CEO of GoGold Resources (TSX:GGD). Previously Brad has created Billion Dollar Gold mines but thinks that this could be the best project he has ever worked on. They have all the cash they need so they can now start to focus on retail investors and help them understand the story.

Interview highlights:

  • Taking advantage of the Mining Cycles.
  • The Los Ricos Project – Finding out what is there and their plans going forward.
  • Shareholders and their expectations.
  • Retail Investment Market and accessing it.
  • Deliverables for the end of this year.

Click here to watch the interview.

Matthew Gordon: We spoke back in April. You gave the introduction to the company then. It was a new story to us. So why don’t you kick off, give people who haven’t heard the story before a one minute summary.

Brad Langille: GoGold is Mexico centered company. It’s really all about the team. The main team players here have been with me, most of them 10-15yrs. Twenty two years in Mexico, building gold mines. Three mines built, plus one that we took over and doubled the production. So we have a lot of experience and open pit gold mining and underground gold mining. A lot of experience with the team in finding and developing gold assets. Recently, we’ve sold one of our gold assets to Agnico Eagle for $95M in 3 years. It was a great gain for us. And currently we have one operating mine, the Parrall Tailings re-treatment. And we have an exploration development asset, which is our Los Ricos asset.

Matthew Gordon: Tell us about Los Ricos, because I’d like to understand your thinking around timing the mining-cycle and timing an exit.

Brad Langille: Las Ricos, in my 27yrs in the mining business, is one of the best undeveloped assets in Mexico. It’s exploration drilling, but in a sense it’s brownfields drilling. And why I call it brownfields drilling is that the asset has a tremendous history. It belonged to a US industrial family called the Daley family. Marcus Daley Sr and Marcus Daley Jr. Marcus Daley Sr was the founder of Anaconda, a very famous US copper producer. And he was one of the Copper barons. His son and his brother-in-law went to Mexico in 1908. The brother-in-law was the US ambassador to Germany in 1917. Not a very good time to be ambassador to Germany. But he also had very tight relations with the federal Mexican government. They were in a civil war from 1910 on. And he was able to get this gold asset from his connections. So they went in there in 1908. They develop the mine. And they mined until 1929. They mined over 1,000,000oz of gold. Very high grades. What they left behind was 25m wide ore zone and they took 2m-4m of it. And that’s what we’re developing to a bulk minable open pit. David Duncan is our manager of exploration. And he’s a real history buff. So when he heard of the Marcus Daley family connection. He went back into the history books but he couldn’t find anything in Anaconda. And he couldn’t find anything in Marcus Daley Jr. But then he researched the brother-in-law, and there was a whole archive up in Missoula, Montana. In that archive, what we found were records that had not been opened for over 70, 80 years. And they are the monthly records of this gold mine from 1908 to 1929. That includes all the surveyed assays, over 12,000 in the mine. What they took out. What they left. What we’re doing right now is grid drilling that first zone. That’s about 1km long. 25m wide and goes down about 900m. So that’s our drilling. We pretty much know where to drill in the main zone. And it’s just definition. It really is in a unique situation. One that I haven’t heard before.

Matthew Gordon: What’s the scale of this project to think for you? Was it going to be?

Brad Langille: From what we know from this historical data, plus 65 more recent drill holes and 30 holes that we drilled. We know we’re onto something that we think is big. It can be world class. We think it’s multi-million ounce. I feel comfortable saying that. We were working towards that 43-101 study. We’ve had a lot of experience developing gold mining deposits. I know of other deposits in Mexico that are multi-million ounce, but they don’t have the grade. What we see here is real good grade. And it’s been demonstrated from our drill holes that this has a tenor of grade that I think will put it into that top 5% or 10% of deposits. And always grade is king. There’s an expression in the mining industry, grade will cover a multitude of sins. So that’s what we have.

Matthew Gordon: You said before that the real focus has got to remain on Los Ricos because of the sheer scale of this. Is that that’s still the thinking?

Brad Langille: That’s correct. I think the real value that’s created in the gold mining industry is from the discovery. And here we’ve gone beyond discovery. We know that there was a gold mine there. We’re drilling off that hill. But from discovery to building into producing. That discovery to development to the point of producing. That’s where most of the value for the investors is made. And then there’s the production. And obviously in the production phase, there’s a lot more value made and on the execution.

Matthew Gordon: When we spoke previously your shares were at $0.34 cents. They’re now $0.42, almost at the year high. Have you been getting quite good traction, quite a good reaction in the marketplace? I know you guys are big shareholders, between insiders and yourself. You have 40% of the stock. You’ve got some nice institutional and a bit of retail following you. So what are they saying to you? Are they saying ‘You know what you are doing, just crack on’, or have they got expectations of you?

Brad Langille: There are institutional investors that have been with us for many years from Gammon, Mex Gold, Nitrate to GoGold. And they know what to expect. We’re real developers. We do build gold mines. And I know, and I think our shareholders know, that ultimately the real value is in having real assets and bringing those assets along to the point, where either they become gold mines or you’re bought by somebody else. And it’s the same roadmap. So those investors are really quite supportive and they’re saying, ‘do what you’ve done before’. And that’s what we’re doing.

Matthew Gordon: I quite like some of the structures that you have created previously, Santa Fortudis for instance. That was quite exciting. And you’ve got a track record of being quite creative with the way that you exit. You’re seeing a big project. You’ve got the capability and we talked previously, you’ve got to be prepared to build it out. But have you got a better sense now from when we last talked about what it is that you have here and what you might do in terms of that exit? You just need to drill a bunch more holes.

Brad Langille: From doing several of these, we know that there’s a checklist. For everybody whether it’s a major mining company or mid-tier. There’s a big technical checklist. And we go through that checklist and we know the steps that you have to take to tick the boxes.

Matthew Gordon: The question I’m asking is, is it like management consultancy? You pretty much work out the answer real quick. It’s just how you then pad out that report. How quickly do management in mining work out what it is that they’ve got and have some sense of where they need to go? Not just the checklist. At what point do you work out what this could be for you to say, ‘We’re going to maybe just navigate that path slightly differently because I think I know where this goes’. How early on do you come up with that?

Brad Langille: A while ago on this one. This one is a very, very unique situation. One that I have not had in my career before. There is enough historical data here. And we have a strong team that when we look at this, we take that historical data and we model it internally. We already have a number. And that’s a very good number. And like I said, grade is king. So we built enough mines and we developed enough mines. We have one of the top percentile projects right now. We have a process we have to go through so that we can display what we have to the investment community and the regulatory community. I see that we have something that is superior. I think maybe one of the best I’ve had in my career. We’re now going through that process so that we can display it to the world. The Denver Gold Show, for example, will be very important, that we’re preparing a lot for that gold show and is big institutional show. That’s in September. And we want to roll this thing out.

Matthew Gordon: That’s where I was getting to Brad. It’s just as fascinating to me that some companies can go through this process… You’re still a small company, $70M market cap. Probably some of that’s due the gold price going up since we last spoke and some of it due to your storytelling. Who knows what that split is. Some companies will go through a journey 2-3yrs without actually knowing where they’re going to end up or working to a plan which says, we know what we’ve got. We know what we’ve got to do here, specifically. And we know what the end point is. Everyone’s working towards the same plan. And that’s what intrigues me about you guys.

Brad Langille: We been here before. And, yes, our market cap is only $70M Canadian right now. Since the first of the year we’ve doubled our market cap. And we doubled our market cap because at the first of the year, we had sold our development asset to Agnico. We bought it for $9M. We sold it for $95M in 3yrs. So we’re very happy with that. And at that point, we had $46M in debt. Because we have an operating mine and that’s what it costs to develop and build it. So now we have no debt. We have a strong balance sheet and we’re on to one of the best gold assets I think I’ve had in my career. And we also have we have a lot of experience in developing this. This is a unique situation. And we’re talking about 1km that we’re drilling off in the zone right now. It’s a 3.2km. We have another area called CR Colorado. That’s your traditional kind of drilling over there, your of discovery drilling. And it’s 1km of this, I would call it brownfields delineation drilling on something because of this mass of data that we discovered. We are already basically know what’s there and now we’re grid drilling it off. So this is such a unique situation. I can see the value that create $70M today. I’ve been here before with with Gammon. We were at $70M and we went into Ocampo. Seven years later, we were at $2.1Bn. So we have a great opportunity here. And a great team.

Matthew Gordon: I buy the track record. I buy the team. Cash generative. Los Ricos is a massive opportunity. I think what you just said about timing it, is really, really fascinating because we talked previously about where the market was. Your share price has doubled since the beginning of the year. I guess you can tell me it’s got a long ways to go. You’re good for cash for now?

Brad Langille: You were very good cash. We’re not going to raise cash. We are in a cyclical business. Timing’s important. I’ll go with what I what I’ve said for years. Our timing is perfect. If you’re there all the time, eventually it will be perfect. We’re mining guys, we have to go with the down-cycle. We have to go with the up-cycle. Right now, I think we’re coming out of the down-cycle. I think we’re beautifully positioned, with one of the best assets I’ve had in my career to ride into that up-cycle, which I believe is going to come in the next 12- 18 months. We’re gonna be solid into the up-cycle. This asset will have superior grade and bulk mining and it’s really going to be one of the assets out there. We couldn’t be in a better place and we’re not we’re not on our knees. We have a strong balance sheet. We have an operating mine. That operating mine is is doing great right now. We just put out a press release a couple days ago. We’re at best production that we’ve had in the mines history.

Matthew Gordon: Great news. Let’s talk about the things that you need to do. Great technical team. You’ve got access to capital of markets. You know how to run mining. What are you doing in terms of talking to the marketplace? You’ve got Denver coming up for institutional guys. But what are you doing for the retail market? How are you getting out there and telling the story to them?

Brad Langille: We do have a lot of roadshows ourselves. We just put them together to talk to people that we know because over the last 20yrs we’ve raised over $1Bn in equity. So we know a lot of people. But Beaver Creek, Denver, Gold Show. We were over in London recently at the 121 Conference. We’re working with Verify, which is a good visualization of what we’re doing. I’m trying to get the data visualized, so I can show our institutional and retail investors to try to get across point of what I see.

Matthew Gordon: Verify is a very good tool. It helps visualise what’s under the ground. But what are you doing to talk to retail? How are you telling this story to that audience, which is going to affect your liquidity? Because the institutions, they come in big money, they sit on it. The retail is going to drive the liquidity here and a bit more volume too. And that’s what’s going to drive the share price up. You’ve seen that work with companies like, RNC is one that springs to mind. But what are you going to do similar to those sorts of companies?

Brad Langille: We’re going to push a lot more media. The newsletter writers obviously are as far as the tie into retail are important that we get the newsletter writers. I’m a I’m a big institutional guy. I raised a lot of money institutionally. But I have a strong team behind me, not just on the technical side. Guys like Steve, who are very good at  newsletter writers, driving some of the social media on the retail side. But we’re on the pink sheets, which we never we want to be on something a little bit better received in the U.S.. And I’m not getting a full listing in the US right now, but we want to make it easier for our US investors to trade in the US. We’re driving a lot of those points and more in the development stage of that program right now. The summertime is is not a great time for a lot of marketing, but we’re we’re doing as much as we can. And into the Fall, we plan on pushing a big program that the retail investor can identify and  get visibility.

Matthew Gordon: We will look out for that. What are the actual deliverables that we should be looking out for between now and the end of the year?

Brad Langille: So as far as the operating mine. What we have been delivering, which is a better and better quarters. It’s a heap leach. So all heap leeches in Mexico are seasonally affected by the monsoon season, which started at the end of June and goes until the 15th of September. We’re in the monsoon and the mine is doing great. We’ve had 5yrs of experience now and our operating procedures, it’s doing really, really well right now. So not much of a hurdle there. The SART Plant at the operating mine will extract a whole bunch of Copper that we have in our system and give us back a whole bunch of cyanide. It’s not an accounting inventory, but there’s a big inventory over there of cyanide and copper when we turn that SART on. And that’ll be ready by the 1st of January 2020. And when that turns on or payback and six months. On Los Ricos, we’re drilling hole number 31 right now. We have two drill rigs doing that brownfields drilling. And we’re gonna step out a little bit too, and throw in a few discovery holes. And we’ll been talking about some of those. We think there’s potential that we’re on to maybe another ore shoot which hadn’t been developed in the past. So we’re looking at the first quarter of 2020 to publish a Resource. We’re leaning a lot on this data that we acquired. And a lot of that data is not just sampling data. There’s a ton of metallurgical data. And that’s one of the boxes you want to tick. You can have a great grade and if you can’t recover it, it’s waste. We got a lot of information on that as well. So we’re gonna come with a lot of comments as we compile this and then we say, ‘OK, this is what the metallurgical shows. Now we’ll do testing to demonstrate that’. But we already know the answer. I can’t say that enough. Where we’re drilling right now. We basically know the answer before we’re asking the question.

Matthew Gordon: So that’s that’s my sense of of this. It feels like what you’re doing is just you’ve got to go through a process which is understood to be able to go, ‘I told you so’.

Brad Langille: That’s where we are. We’re leaning along in history of this project. And I think that’s the theme on the wall behind me today. I’m in the the Lodge, a very historical lodge. So I’m on vacation today. I’m off to the mine on Sunday. History has a lot to do with what we’re doing right now.

Matthew Gordon: It’s historical data. Some people lean on history, others lean on historical data to inform the future.

Brad Langille: This is historical data which was done very well.

Matthew Gordon: And well found. Brad I think that’s a fantastic update. I really appreciate it. You’ve got to keep us up to date, especially around September time when you’re coming back out to market. I think a lot of our investors have been chasing us for information about you. So it’s been great to have you on today. But keep that information coming.

Brad Langille: We’ll be doing that. We’re very excited about the Fall. We’re a little bit in the summer doldrums. It’s very quiet, but we’re getting our ducks in a row and it feels good.

Matthew Gordon: It’s very exciting. I think the share prices reflect that. Let’s see if you can keep that going.

Company page: https://gogoldresources.com/

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Para Resources (TSX-V: PBR) – Focused on Their Two Gold Assets but Also Feeling Opportunistic (Transcript)

Interview with Geoff Hampson, CEO of Para Resources (TSX-V:PBR).

We ask him about getting into production and making money and creating value.
Current assets will be in production by end of the year and producing Gold. High-margin and Focused on stabilising cash flow.

In conversation with targeted assets which fit the profile of companies they like to acquire, small undervalued, near term producing Gold assets, probably South American. Building a mid-tier gold producer. They are in a show me stage.

Interview highlights:

  • Overview of the Company and Team
  • Assets and their positive aspects
  • Company Strategy and the Bigger Picture
  • Shareholders and Access to Cash
  • The Gold Market
  • Share price highs and lows, what happened in May?

Click here to watch the interview.

Matthew Gordon: Thanks for taking the time to speak with us.  We usually get people to kick off with a two summary on the business and then we’ll get into some questions after that.

Geoff Hampson: So Para Resources is a junior mining company.  We have a couple of different properties – one in Colombia and one in Arizona in the USA.  Both are Gold mining opportunities, and when we started this company we really started looking for mining properties that where there was an existing infrastructure, an existing mill, but also where there was a lot of exploration potential.

So we wanted to bypass the period of time that it takes from a greenfield exploration to a production, by having some small production that could generate cash flow, where the permits were already in place and where there were some under explored opportunities.

Matthew Gordon: If you don’t mind, can I just explore that a little bit further because I think it’s fascinating.  Different companies with different strategies hoping for the same outcome. Obviously, it doesn’t always turn out that way.  So tell us a little bit about you.  I notice you’re a finance guy by background but you’ve got a big team of technical people.  So you’ve gone out and identified two assets which meet the criteria that you specified, which is great.  Was there any competition for them or did you get lucky or who did you know?

Geoff Hampson: Just about my background, I’ve been an entrepreneur for 35 years.  I’ve built a number of different businesses.  I’ve been successful in being contrarian and finding my entry point at the low point of the market where the sector was out of favour, and I’m a believer that you make money if you buy well and you have the right people and the right macro environment opportunity.

One of the reasons that we’ve been able to acquire these properties and acquire them relatively cheaply, and if you look at it in the historical perspective, is because the sector has been out of favour and there has been little money, and so junior mining companies have really struggled over the last five years because the cycle changed – particularly with Gold.  Some of the majors overspent, leveraged their balance sheet, made bad acquisitions and have spent the last five years really just trying to fix their balance sheet by selling off non-core assets by producing, by not exploring and not increasing their reserves.

And that has traditionally been one of the sources of capital for the junior mining industry because the majors have allowed the juniors to take the risk and do the exploration and they’ve funded some of the juniors as they’ve started to develop resources.  That has completely dried up and the retail investors have fled.  On the Toronto Stock Exchange, the venture exchange, everybody has been making so much money on marijuana stocks that nobody’s really interested in the resource sector.

So while that’s a problem, it also has created an opportunity and because of that, asset values, equity values, are at historic lows. So we’ve able to manage that by buying cheaply.

Matthew Gordon: So no one sells their good stuff, and certainly not cheaply.  So what did you like about these assets specifically?  You’re saying you have one in Arizona, one in Colombia.  They’re not too far apart, but… 

Geoff Hampson: But worlds’ apart.  What we liked about them was that – and maybe I can just talk about them individually because in Colombia, after the government made a deal with Farc, vast portions of the country that had been off the grid in terms of being welcoming for Western mining companies, opened up.  There have been a lot of small, artisanal, some legal, some illegal miners, and we’ve looked at that as being an indicator of where there might be Gold. 

We identified the El Limon mine, which was a relatively small mine, 75 tonnes per day, 25 years, but still producing.  When we looked at that mine and the fact that it was fully permitted, that it has capacity for tailings, there’s lots of water and the fact that all around that area there were all these small miners, but the area had never been drilled.  So we said, “Hey, this fits our criteria.  A small existing mine, fully permitted, that with a little bit of work can be rehabilitated and improved to product cash flow to fund an exploration programme in this valley.”

And so we acquired the mineral rights for a 12km long stretch where there is this a vein system that we know is there because of the small miners and we know that it’s the same vein system because we were able to go and check the geology. 

So the idea is that we took this mine, increased the capacity from 75 tonnes per day to 225 tonnes per day and then went out with the government to try and formalise some of these other small mines. 

The government told us that would take about six months, but in fact it’s taken about three years, and so we’re just now starting to see the ore coming from these other parts of the vein, and we’re operating, we’re at cash flow break even, but we have a plan over the next year to bring these additional sources on, which will get us up to full capacity.

So the idea is fully permitted, ready to start producing and exploration potential. We’ve looked at hundreds of different opportunities and have found two that we’ve acquired and we’ve got  few other ones in the pipeline that we’re looking at.

Matthew Gordon: So how much have you spent on that to date and what do you think it’s worth?

Geoff Hampson: Acquisition cost, the rehabilitation of the mill, the permitting work, about $12M US in Colombia.

Matthew Gordon: And how much more to go?

Geoff Hampson: It really doesn’t need that much more.  If it needs more it would be in the hundreds of thousands of dollars, but it’s fully funded and it’s cash flow break even from operations today.  Most of the cap ex has been invested, so we’re sort of ready to go as we ramp up the production from these other mines.

Matthew Gordon: What are you hoping for in terms of production amount?

Geoff Hampson: In 2020, we should be somewhere around 8,000 to 9,000 ounces, but in 2021 that will go up to around 15,000 to 20,000 ounces.  It’s very grade dependent.

Matthew Gordon: And it’s a reasonable grade as well, from what I can read. So the hope is what there, that will be a cash generative business to do what?  Explore further or is it to create cash for other parts of your business?  What’s the thinking behind El Limon?

Geoff Hampson: The mine site is fully permitted to 400 tonnes per day, so we have expansion opportunities there, but in 2020 when we’re producing, we will start an exploration programme on this vein.  It’s called the 02 vein.  It’s about 12km long.  It’s a series of parallel veins at average grade. On a fully deluded basis it’s around seven grams per tonne.  Some parts of it are higher grade, but as we start to drill that out we would expect that we would be able to build a sizeable resource.  So we have a target of about a million ounces to be discovered in the next couple of years, at which point we think that we can justify increasing the capacity of the mill to 400 tonnes or more per day, and at that point generating $20M-$25M a year worth of cash flow.

So we also think – and this is more of a macro discussion – that as the cycle for the Gold mining industry changes, and I can talk about what I think are those indicators, the majors who have not been replacing their reserves that they’ve been mining over the last five years, will be looking to buy reserves because it’s cheaper to buy Gold in the ground than it is to actually go out and explore…

Matthew Gordon: It’s going to take a lot more ounces than 1Moz for them to come knocking at the door, isn’t it?  That’s why I ask, what’s the hope?  What’s the blue sky for El Limon?

Geoff Hampson: I think there is potential for more than 1Moz.  The cost of producing Gold there is relatively low.  It’s about $725 an ounce and with a capital cost of $12M, pay back is a year and a half.  As we increase the size of the reserves and we increase the size of the mill, that’s going to grow.  So it’s going to be a very nice cash flow business, but I think that there’s several tiers in the Gold mining business.  There’s the juniors, there’s the mid-tier and then there’s the majors. 

You’re absolutely right.  The majors aren’t going to come knocking for 1Moz, but the mid-tiers will. 

Matthew Gordon: But this is why I ask you about strategy and why I’m always interested to understand the conversations that the Board or the management team have.  It’s a nice cash generating business.  If you think it’s got potential to be a 5-7Moz Resource, that’s fantastic.  You’ll get a lot of people knocking at the door, but if it’s producing a lot of cash, maybe – and I know you’re going to talk about Gold Road in a minute – it helps with another target. 

Where you’re positioning is you think it’s a nice, small standalone business which may be able to grow. Or do you think it’s part of a bigger story that you’re trying to tell?

Geoff Hampson: We particularly like South America and Latin America.  Our team has a lot of experience there and we see this as sort of a platform.  We will use the cash flow to look at other acquisitions.  We’ve got other things that we’re looking at Colombia, but also in Ecuador and in Peru.  So we see this as a sort of first step to building a mid-tier producer in the region.

Matthew Gordon: So are those conversations ongoing at the moment?

Geoff Hampson: Yes they are.

Matthew Gordon: They are!  Obviously there’s a few people trying to do the same thing, so it’s a competitive environment.  You’ve got quite a few locals working for you?     

Geoff Hampson: That’s right.  And we’ve got a number of people… Randy Martin who is on the Board of Directors and the COO, has been very successful on Latin and South America, and building out Gold mines.  He’s built some, sold some and has very deep contacts with government and agencies.  We see a regular stream of opportunities, but we’re pretty picky and so they have to meet the criteria that we’ve established and we have to be able to buy them well. 

You’re right, there’s a bit of competition, but typically the opportunities that we’re finding at not being widely marketed, and so it’s really more based on relationships and being able to go in and talk to the owners and work out a deal.  So very few of these companies that we’re looking at have actually hired an investment banker or have any process to try and sell the asset.  So it’s really showing up and saying, “We want to buy it and working out the terms.”

Matthew Gordon: But how do you do that?  Again, I do hear that story a lot and what I’m trying to get at is the point of differentiation for you guys.  I know you’ve got a finance background, a very successful man.  Have you got ready access to cash?  I know one of the shareholders of your business.  Have you got ready access to cash to be able to have those conversations, to turn things round quickly, because that’s what it takes?

Geoff Hampson: And the answer is yes, and I think that we’ve demonstrated that by the fact that the insiders, myself and particularly Glenn and Randy, we have put the majority of the money that has gone into this company.  We’re now between the three of us about $30M deep into the company and we have additional resources that we can deploy quickly if the opportunity comes along. 

But there’s also an advantage of having an operating, profitable mine.  For instance, our operation in Colombia is unlevered.  So next year as we’re starting to produce cash flow, we can use that a base to be able to go out and make other acquisitions.

Matthew Gordon: That’s what I’m trying to understand.  How do you build this?  Otherwise the danger of it being the same story, lots of $35M companies in the same position.  What do you have that others don’t? You’ve got your own cash and access to further cash from yourselves, but also the ability to go to market with the right story. 

Geoff Hampson: I think that is the differentiator, plus I think the experience of the team in knowing how to make these operations work.  Narrow vein, underground mines are a bit tricky and so you need to have expertise and people who know how to make them work.  Lots and lots of examples of projects where they have a PEA or even a feasibility study that says they can make money, but then when they actually get into the ground, they can’t figure it out. 

 We’ve looked at a number of those opportunities that are essentially destressed plays and some we’ve passed on.  Others we’ve looked at and said, “Well, we would do differently and here’s what we would do.”  So there is an opportunity there when you’ve got access to capital and you’ve got the expertise and the track record of working in that environment and also working in that kind of mine.

Matthew Gordon: Well, I think the ASIC number is impressive.  If you can deliver that, that’s great.  Obviously the grades help.  Why don’t we get onto Gold Road, and then maybe we might be able to join the conversation up then?

Geoff Hampson: So Gold Road is a bigger operation.  It’s a 500 tonnes per day CIL plant, fully functioning.  We acquired it end of 2017.  We did a PEA which showed that it had an $85 million NPV, that we could produce 35,000 to 40,000oz a year at an all-in cost of about $825 per ounce.

So we bought the asset for $6.1M.  So we bought it well.  We had an appraisal done on the equipment and it came in at over $20M.  So on the liquidation basis, we could have doubled our money if we had chosen to do that.   

It fit one criteria which was buy well.  There’s a resource in the mine of 215,000oz, so that gives us a 7yrs mine life (LOM) but it’s open at depth and open on strike.  It’s got an average grade of around seven grams per tonne.  It’s a nice mine.  It’s in a great jurisdiction.  The Oakman district is a historic Gold mining area.  The mine itself is right on Road 66 and so it’s easy access, two and a half hour drive to Las Vegas.  So it makes it easy to get to and a mining district, so lots of people, suppliers and so forth.           Very, very different than doing business in Colombia where getting people and expertise and suppliers is a real challenge. 

So what we’ve done is we’ve rehabilitated the mill.  We’ve done a lot of development work underground and we’re essentially a couple of months away from mining right now.  We’re just opening up a new area at the 900 level.  As soon as we’ve completed the drift to the end of the ore shoot, we’ll put the secondary escape route in and then we can come in and start mining. 

That’s probably going to be some time around October or November and we’ll be able to go right to a full production now.  We’re actually stockpiling some material now as we’re doing the development work, as some of that development work is in the vein. 

The vein in Gold Road is typically around three to eight feet in width, so it’s much wider than what we have in Colombia.  The grade is about the same as Colombia, but it’s easier mining and when we did our technical report our consultants indicated that based on some of the drilling that had been done at depth, it wasn’t enough to put the ore into the resource, but indicated that the vein was open at depth.  Indicated that they thought we could increase the resource by 700,000 to a million ounces.

And so over the next couple of years we will do that.  We’ve already started drilling, but this mine is very, very good shape.  We’ve fixed some of the problems that were in the under ground that were causing the previous owner to have some problems.  Just some fairly simple changes to the mining method – just things like straightening out the decline and so forth.  We’ve done quite a lot of work there and it’s really looking good right now. 

Matthew Gordon: Tell me about the mill bit, because I just want to understand that and I want to bring this conversation back together. The mill you’ve upgraded has got potential to be upgraded further, presumably?

Geoff Hampson: When we acquired it, it was 500 tonne per day.   And so what we’ve done is we’ve gone in and just completely done maintenance, I guess you could really call it, because it was fine before, but we’ve replaced hoses, changed fluids, basically tested it . We’ve tested the whole circuit now.  We’ve actually produced Gold, so we know it all works.  The recovery is very good, 95% recovery.  So the mill is in great shape, the under ground is almost completed in terms of development work and we’re ready to start producing.

Matthew Gordon: How does it go from 500 tonnes to 1,000 tonnes per day?  How much does that cost you and when do you make that decision?

Geoff Hampson: It’s fully permitted for 1,000 tonnes per day, so probably about $20M to $25M worth of CapEx required to double the capacity of the mill.  Depending on how we build out the resource, we’ll make that decision.

What’s interesting there about the exploration potential is that we’ve also acquired an adjacent property.  There’s actually a series of three veins that ran through this area.  Gold Road is he northernmost vein, but about a mile and a half away is what’s called the true vein. There were seven historic mines that were built and mined from 1890s through the 1940s and 1.3Moz have been produced out of the true vein.

But what’s interesting there is that the vein widths are quite a bit wider, sort of 13 to 15 ft in width, and the grade is much higher.  So the average grade over the history of the mining on that vein has been 23g/t.  Because the way that the mining was done back in the old days was there was an outcrop that showed the vein.  They started mining and they traced the vein but it’s a continuous vein and it goes for about two and a half, three miles.  But it’s never really been properly drilled and so there’s a series of mines along this vein but it’s never been drilled between the mines, and the cut off in those days was 0.5 ounces per tonne.  So if they got to a section that was at 0.5 ounces, or lower, they would stop.  We know from the historic mining records that there’s an enormous amount of ore that’s still in there.  And it’s higher grade than at Gold Road.  And because it’s only a mile and a half away on a paved highway from our mill, we’re hoping that we’ll be able to establish some tonnage there and that we’ll be able to mine that higher grade material as well.

So long story to come back to, the mill expansion.  If we establish tonnage at a higher grade, we’ll obviously want to mine that and we’ll need more capacity. 

And to keep the numbers straight, 7g/t at Gold Road yields 35,000oz per year at the mill, at 500 tonnes per day.  But if we’re able to find ore that matches the historic grade – and I will keep the maths easy and say, 21g/t, if it’s three times we’re talking about 125,000oz per year and the average cost, all in cost, goes down to about $500.

So that’s the exploration potential.  We don’t know for sure what’s there, but certainly the fact that there has been historic mining there is a good indicator that there’s Gold, and that’s it open…

Matthew Gordon: A bit of work to do between now and then obviously, but lots of optionality.  But you’re going to have to also spend a lot of money to do that.  That project sounds quite interesting to me, Gold Road, which is why I asked initially about what’s the plan for El Limon  – because if that’s producing cash, that does finance your work in Gold Road?  And that’s a nice way to make sure there’s no dilution or do you feel that you can structure a deal whereby there’s very little dilution for existing shareholders going forward because you are producing some cash, there’s some leverage to be had?

Geoff Hampson: We’ve invested into Gold Road.  The acquisition plus the work that’s been done so far is about $22M-$23M.  We’ve probably got another $3-$4M worth of development work to do before we actually start mining.  But the way that we’ve designed the development plan and the mine plan, we’ll be able to 500 tonnes per day right away.  I mentioned that we’re stockpiling some material, but once we’ve completed the development into the 900 level we’ll open up a number of different stopes which will get us the 500 tonnes per day.

By the end of the year we’ll be producing closet of cash and in 2020 we anticipate in our financial model, which uses $12.50 per ounce for Gold, that we’ll generate somewhere between $18 to $20 million with the free cash flow.  So that’s net of sustained FX. 

So part of that money – not all of that money, but part of that money will go into an exploration programme to increase the reserves at Gold Road, but also to drill into the true vein.

Matthew Gordon: How much cash are you sitting on today and will you need to do another raise?

Geoff Hampson: We’ve got about $2 million in cash today.  As I mentioned we need another $2-$4M to complete the work at Gold Road.  We’re either going to go and do another small financing or we’ll do it ourselves, but we’re moving along at pace so we’re not really concerned.

Matthew Gordon: So if it was you, that’s an equity raise.  You’re not putting money into the company as a loan or anything?

Geoff Hampson: Right.

Matthew Gordon: How would you put the money in?

Geoff Sampson: Probably in the form of equity, but it might also go in some debt.  We haven’t really determined that yet.

Matthew Gordon: It’s quite interesting because management own a lot of this company.  You’re committed.  You’re in.  So your decision making is… you can genuinely say you’re aligned with the market properly.  That’s mostly retail, Canadian retail, I would presume. Is it?

Geoff Hampson: There’s a bit of… I wouldn’t necessarily call it institutional, but more sort of family offices that have written bigger cheques. There are obviously some retail investors as well, but we’ve got probably 12 or 15 mostly European family offices who have put in a quarter of a million or dollars or so each in previous financings. 

Matthew Gordon: Why European? Where’s that come from?

Geoff Hampson: There’s just been a better appetite for this kind of a deal in Europe than there has been in Canada.  It’s not for lack of trying.  I’ve done a lot of work to try and raise money in Canada, but I’ve gotten a much better reception in London, Zurich, Munich and strangely Budapest. 

Matthew Gordon: Budapest.  Okay, that’s a new one.

Geoff Hampson: I think that the Europeans have a little bit more of an affinity to Gold than Americans and Canadians, as I mentioned before have become distracted by marijuana.

Matthew Gordon: Let’s just then focus on those people, because looking at the share price, you’ve had your highs and lows.  Highs of $0.21, $0.22.  Lows of $0.12.  May was a strange month for you.  What happened?

Geoff Hampson: Well, there was one seller that decided to move his position and it would have probably been better just generally speaking if he had called me and said “I want to move this position,” but it took us a while to figure out where all the pressure was coming from.  Initial contact with him was negative.  He said, “No, I’m not a seller,” but anyway it is what it is.  This is the joys of being in the public market.

Especially the junior market for sure.  I’ve learnt this over the past few years.   He could have crossed, it would have been great.

Matthew Gordon: But if I look at where the future is, you talked about M&A, but you’re not in a position at any time soon to look at M&A.  You’ve got a lot of moving parts here as it is. Is M&A just a story you’re telling the market or are you going to focus on what you’ve got? 

Geoff Hampson: I think that we’re very focused on getting these two assets up and running and generating positive cash but we’re also pretty opportunistic.  There are some – and just sort of be careful how I say this – but there are some assets which are really good fits for us, that are available and we’re moving forward on doing a deal with those.  But it’s because it creates quite a bit more value, it’s strategic but also financial and so we continue to see a lot of opportunity and our goal is to build out a mid-tier Gold producer within the next three to five years.  We think we’ve got a fairly straight line, 200,000, 250,000 ounces per year.  It’s not going to be easy, but we think we can do that with the cash flow that we will generate from these existing operations. 

Matthew Gordon: That would be great if you could do that.  So you’re looking at these small, undervalued producing or near term producing assets, building up a portfolio, looking at different countries or are you back in Colombia and the States?  What are you focused on?

Geoff Hampson: There are some places that we would probably not go, but we have an advisor to the company who is a former Minister of Mining in Ecuador, Javier Cordoba.  He is assisting us on looking at opportunities in Ecuador and Peru and Chile, where he has very strong relationships with the government.  That is helping us to be able to shortlist opportunities.

As I mentioned, we’re really focused on getting the existing assets, cash flow and stabilised, but that’s fairly near term for us.  By the end of this year both of these operations will be in full production and producing Gold.  All of our models have been based on $1250 an ounce Gold, so in this environment where Gold is trading higher, our projections of cash flow are probably on the conservative side – which is fine, but I think that there is going to be ample opportunity for us to look at new acquisitions or expansions of existing assets.

Matthew Gordon: For investors, getting into production and making money are two different things.  Creating value is yet again something different.  So in terms of those components, you’re saying that you can get into production quite soon.  Positive cash flow, that’s a little bit further out, and I guess for some of these acquisitions you may see some value being created for shareholders.  Is that the way you see the future?

Geoff Hampson: I think that like every public company, CEO, I think our stock is undervalued.  Our market cap is essentially 1X projected 2020 cash flow.  And so our shareholders, I wouldn’t say have been long suffering, but you’re absolutely right. Our share price has stayed in a fairly narrow band between $0.12 and $0.25 for the last three years.  And so I think that we’re in a ‘show me’ stage.  I’m expecting that as we go into 2020 and we start showing quarter over quarter improvements and positive cash and, we believe, profits, that the market will say, “Okay, this is a real deal,” and that we’ll see some appreciation in the stock price

I could be wrong there because I don’t pretend to understand the public markets or the sentiment of the public markets, but I think that if we’re generating positive cash, people will take notice.

Matthew Gordon: I think they will, and as you say, do what you say you’re going to do consistently.

Geoff Hampson: And we haven’t really done anything in terms of promotion.  We’ve felt that it would be better to wait until we’re closer to achieving our goals and then start telling the story rather than be telling the story and having people have to wait.  So this interview – with some of the things that we’re starting to do are in anticipation of actually getting out there and telling the story.

Matthew Gordon: Well, I’ve enjoyed listening to it today, Geoff.  Nice first pass.  Let’s stay in touch.  Let’s maybe in the next few months see how you get on, and as you get closer to some of these catalyst moments.  Appreciate your time.

Geoff Hampson: Thank you very much for your time.

Company page: 

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.

Premier Gold Mines (TSX: PG) – Increasing Production, Strategy, M&A, Gold Price and Share Price (Transcript)

We interviewed Ewan Downie, CEO of Premier Gold Mines. This team are capable of making deals, partnering with big companies and getting access to non-dilutory cash. Despite giving guidance to the market about depleting production at South Arturo mine, their share price has been punished. They need to focus on delivering +100,000oz. Lots of Exploration assets at different stages. Where did it start?

Click here to watch the interview.

Matthew Gordon: Thanks very much for taking the time out. We always get people to start off with a two minute summary of the business.  Then we get stuck into a few meaningful questions after that, so if you don’t mind?

Ewan Downie: Premier Gold Mines is an exploration development and producing company, a company that’s been around for just over a decade and has been one of a few mining companies that’s made the transition from explorer to producer. Currently we have two operating mines and several near development or development stage projects within our extensive portfolio of project.

Matthew Gordon: I think the obvious observation I had when going through the material was that you look like deal makers, as well as miners.  You’ve put together some packages, you’ve done some joint ventures, you’ve got some big names involved – Barrick Gold Corp.  Tell us a little bit about you and the team and perhaps that might explain the deal maker / miner perception that I have of you.

Ewan Downie: Well, Premier started, as I mentioned earlier, an exploration company, and as an explorer and one of the team that we started the company with were essentially geologists, etc.  And as a geological group and an exploration company we are a team that recognise that very few projects actually go from being a concept exploration effort to full production.  In fact, probably more than 99% of mineral properties don’t become mines.  So by having multiple projects gives us more options, so to speak, and we’ve always been a company that has a moral of ‘don’t always think that we have is the best.’  There could be something better and if we find something that’s as good or better than our current portfolio, we should own it.

So we’ve always been open to trading opportunities, if we found the right opportunities.

Matthew Gordon: This is for an audience perhaps who haven’t come across Premier Gold.  I know you’re a big company.  $400M market cap now, and you’re a producer.  Can you explain the process that you’ve been through in terms of where did you start? Which assets did you start with and talk about some of these joint ventures that you’ve managed to deliver?

Ewan Downie: We started in 2006.  We were Spiona, the company I founded in the late 90s called Wolfbein.  So at the time Premier was a free share to our shareholders.  We started in the Red Lake camp, one of the most prolific high-grade Gold camps, I think you’ll find anywhere in the world, and we established a fairly strategic land positioning amongst the two producers, which at the time were Gold Corp and Plasser Dome. 

We started by there by realising at some point that to our grow our company we couldn’t just sit around and wait for Gold Corp to do something with us.  So we identified the Hardrock project, our Greenstone Gold joint venture now with Centerra as a potential acquisition candidate that could host a significant open pit deposit and luckily we were very successful at delineating that open pit deposit.  In between open pit and under ground that project is now a 9Moz, but it’s expected to be a large open pit.  It’s in full company right now and the market hasn’t been at its highest for several years and we recognise that to build a project of its scale, that it would be a very tough task for a company outside to Gold mine.  And so we set out looking for a partner and were able to secure Centerra Gold as our partner who was solely funding that project.

They paid us a cash payment and with that cash payment when they came in, we continued to identify other opportunities and our two producing projects – the South Arturo in Nevada and Mercedes in Mexico – were acquired with or partially with the funds that we received from Centerra as they came in.  So we’ve been able to, I’d say, make some strategic acquisitions to grow our business with that joint venture.

Matthew Gordon: So you’ve kind of leapfrogged the process to getting to be a producer using cash from an exploration asset which you developed through with someone else’s money.  It enabled yourself to take their cash and buy producing assets which perhaps didn’t meet their profile, but were good enough for you to start. You’re not quite at 100,000 ounces.  How many ounces are you producing at the moment?

Ewan Downie: This year will be under 100,000 ounces.  Probably in the range of 80 – 85,000 ounces.  89,000 ounces this year mainly because the South Arturo project in Nevada we depleted our first pit and we’re not constructing a second pit, and in underground from the bottom of our first mining pit.  So the South Arturo mine is going through a bit of a rebirth stage with two new mines being constructed as we speak.

Matthew Gordon: You’ve also got four exploration assets at various stages of development and funding. You’re filling the hopper?

Ewan Downie: Yes.  We take the view that we’re not looking out just for next month.  What are we going to do next month or next quarter?  We recognise that if we’re going to build a successful long-term mining company, you can’t do it one asset, and unfortunately mining is a depleting commodity industry and if you don’t replace reserves or find additional reserves at other projects ultimately you won’t be a producer anymore.  So we’re always looking out for what will be the next project that we may be able to integrate to become our next production centre for the company. 

Currently we’re curating two projects that we hope we’re going to develop and open in the next couple of years.

Matthew Gordon: Well, that leads us nicely on to strategy.  I’ve got a sense of the mentality in terms of the way you go about doing business, and it seems there’s some deal making acumen there.  But I want to talk about the strategy now, which is these exploration assets presumably are going to follow a very similar model to that you’ve already employed successfully with Greenstone, for instance.  Is that true to say?

Ewan Downie: Yes. We’re quite open to developing our own deposits.  In fact, later this year we expect to start developing our Cove property, one of our high grade projects in Nevada, and that will be the first project that we initiated the development on our own and built Mercedes, our producing mine, was acquired from New Manor, was already operating, and our South Arturo project where the two mines are under construction is operated by our partner, Barrick. We are participating in the construction, but we’re not actually… Our strategy is to continue to grow our portfolio, such that we continue to hopefully maintain a steady production profile in the future and steady cash flow so that ultimately we can give back to shareholders.

Matthew Gordon: If I look at your share price, you have been as high as $5, back in July of 2016 and you’re around circa $2 today.  It’s been a bumpy ride.  At which point do you think the market investors have given you credit for your strategy?  Obviously the Greenstone project or getting Barrick involved, finding new exploration assets… what do you think they’re rewarding you for? Or is it all of the above?

Ewan Downie: I think right now we’re being somewhat penalised for being in a development stage.  Even though we do have the one producing asset and some Gold being still produced from stockpiles at South Arturo, given that you mentioned back in ’16 we were up at five dollars, that was when South Arturo was in full swing.  So we had the two mines operating, we generated a huge amount of cash flow in that year and in 2017 I think Premier was one of the top performing Gold stocks in all of the TSX, but then that Phase 2 open pit, as we called it, as South Arturo was depleted, and since then we’ve been processing some lower Gold stockpiles but our production profile dipped as we’ve been constructing the two new mines.

At the end of this year we expect the underground to come online and I’d like to think then we start to get rewarded for our future production growth.  However, right now I think we’re being somewhat penalised because we’re in that development stage and you’re spending a lot more cash than you’re making.

Matthew Gordon: Well, that’s true.  If you look back to that period, what are the key takeaways there?  Mining is cyclical.  Commodity prices are cyclical.  There are ups and downs and it’s a tough business, understand that.  What would you have done differently looking back to that period?

Ewan Downie: I don’t think we would have done anything really differently.  There’s maybe an acquisition or two we looked at that we passed on that turned out better than we thought.  You look at those opportunities.  We always had an internal mentality that we’re going to see this production gap and what we call it, we need to fill that gap, and we’re looking for producing or near producing opportunities that would have smoothed down our production profile.  All of the assets we looked at either sold for significantly more than we were willing to pay or were solar power and we viewed them as being really not profitable or not really economic. 

I think we made a lot of good decisions on what we passed on, but there’s maybe one or two that we did pass on that turned out to be better than we expected.  So really I think we wouldn’t have done anything really differently.  Just the only thing I wish is that we would have been more successful in finding something to bridge that gap.  Now the gap is closing, so we should outperform in my view going forward.

Matthew Gordon: So if I look at your share price It’s $400M. About a hundred of that in the last month or so with the price of Gold going up. That’s obviously a very welcome addition to the mix for everyone in the Gold space at the moment.  What are you going to do during that period?  Do you need money?  Do you need to go and raise cash?  It depends what your plans are.  What have you told the market?  What are you thinking?

Ewan Downie: We ended the last quarter with approximately $45M in cash, so we’re in great financial shape.  During the first half of the year we secured a credit facility for an additional $50M which provides us with the ability to fully fund the building of the Phase 1, El Nino underground mines at South Arturo and the advanced stage development at Cove. 

So currently for these projects that are near term, expectations we have for cash outflow we’re well funded to do those.  That will mean drawing from our facility.  However, Hard Rock, our Greenstone Gold joint venture, if we do make a production decision for that project, even though we have joint ventured half and we’re currently being free carried, ultimately once it goes into construction we will have to contribute and some time in the future we will look at different means of how we would finance that project. 

However, at present we haven’t made a decision whether to go ahead with that property and don’t expect to do so until late this year or early next year.

Matthew Gordon: Even with the Gold price rising?  Well, tell us, what’s your expectation of the Gold price?  I guess, If I’d asked you two months’ ago, it would be a very different answer.  Now what are your thoughts on that because that’s got to effect the timing of when you’re even considering raising capital, because it’s going to be cheap money now.  If the price drops again, money gets more expensive.  Your decision making gets harder. 

Ewan Downie: I believe that we’ve assembled a number of assets that would be on the lower side on the production cost scale.  So we should generate good cash no matter where the price of Gold goes.  Over the last four or five, six years, we’ve seen Gold test the $1,350 several times and not break it, so after several attempts sometimes you lose a bit of your gung-ho.

Matthew Gordon: Maybe that’s a wise stance to take, certainly. But on that, you say whatever the price is you’ll make money.  If I look at Mercedes, you’re indicating AISC of $900 – $950.  Is that what you’re going to be expecting at South Arturo as well or is it a different price point?

Ewan Downie: I’d expect South Arturo will be a lower cost operation.  The Phase 2 pit, the all-in sustaining when that was in production was less than $400 an ounce.  Very high margin ounces.  We’re not expecting Phase 1 in El Nino to be quite as low cost but we expect them to be quite low cost.

Mercedes, last year and this year continue to be transition years as we are developing several new deposits.  However, the new deposits that we develop, the largest of those, Diluvio, is one of our lower grade deposits.  Has a bit better wind span, lower grade, and we’re currently drilling off Marianus, which is our higher grade – and what we anticipate to be our higher grade – zone at Mercedes, but we won’t see the benefits of Marianus until late this / early next year, and then we should see hopefully the analysis grow slightly because of the influence of higher grade material and with that, we’d hope the cost can get down. But Mercedes is a moderate grade, a moderate cost operation and we are optimistic in Marianus we’ll be able to improve on the operations starting next year and we continue to focus on exploration with the hopes of identifying new higher grade deposits than the current operation.

Matthew Gordon: That gives me a sense of what the management team’s focused on – the hot topics in your monthly meetings that you’re discussing.  You want to make sure it’s a much more smoother ride going forward.  With South Arturo coming onboard, you expect obviously one) start to be cash flowing from that, 2) you’ve got cash reserves, $45M, plus a facility of you said $50M, something like that. You feel that you’ve got enough in the armoury to move the exploration assets, which have possibly got the biggest chance of shareholder enhancement.  Is that the way your mind’s working or are there things that more than that are keeping you awake at night? If so, what are they?

Ewan Downie: Now with the new Barrick Newmont joint venture in Nevada, once that’s consummated – and I believe it was just announced yesterday that the deal has been consummated – Barrick, who’s the operator, will have to look at all of their operations and how are they going to fill the mill and all of those facilities and what deposits are going to go where?  We haven’t provided, I would say, very good guidance in terms of the future at South Arturo even though we’re constructing two new mines because of a bit of the unknown that’s coming with this joint venture.

However, we are building two new mines because we expect them to be good new mines, and so that’s going to be a big part of our future this year – seeing those new operations come online.  For Hard Rock part of the main deposit at Greenstone, our feasibility study was completed in 2016 and a substantial amount of work has been completed since then, including several drill campaigns and we are expecting in the second half of this year, a number of catalysts to come out of Hard Rock because of what we’ve been doing over the past two or three years at that property.

And then lastly, we are going to be drilling at a property that we’re acquiring from Barrick, called Rye, in Nevada, that we’re quite optimistic is going to return some really good – some of that sex appeal type thing you were taking about for shareholders. “Hey, what’s the next new thing, more than maybe a production coming.”

Matthew Gordon: If I look in chat rooms and forums and online platforms, people aren’t talking about you very much.  There’s not a lot of conversation, not a lot of chatter, and what there is, is not a lot of new information. I just wonder what you’re going to be doing to…  I guess, talking to people like me to start, but what’s the plan here in terms of explaining what is…?  There’s a lot of moving parts and it’s trying to break that down for investors to help them understand where the upside’s going to come from.   You mentioned the word ‘catalyst’ a second ago.  A lot of the regular catalysts that you and I have been used to over the past 10, 15 years, weren’t working last year.  Why are they going to work now?

Ewan Downie: I think one thing, we’re trying to simplify our story.  As you said, there’s a lot of moving parts.  Some people may get a little confused of where is this company going and how is trying to achieve?  I liken ourselves to what Agnico Eagle was years ago.  They grew several projects to go from being a small pay stock to a major producer.  To do that they went through their trials and tribulations over the years and built out operations.  We’re trying not to have anything that really…  We’re trying to smooth out our growth profile going forward rather than try to see the spikiness that you might see as an explorer.  Everybody’s excited about the exploration beyond the chat rooms, but ultimately if nobody buys you, then reality sets in and how much money do you need to build that etc?  You know, that rises up in exploration and development and then when you get into mining and hopefully profitable mining, then you should actually see your highest growth in your share price through that initiative.

So we try to be somewhat humble and steady on how we deliver news.  Obviously if we make a major discovery somewhere, we’ll talk about it, but our main thrust is saying we have one operating mine, two in construction, with one coming online later this year, the other one in 2020, and two additional projects in full permitting for future development.  So in terms of long-term production growth, I think there’s very few companies who offer the opportunity that Premier Gold does.

Matthew Gordon: So you think that all things being equal, the assets that you’ve got will allow you to deliver meaningful growth over the next couple of years.  That’s the message to investors, retail and institutional? Tell me, how do you balance worrying about the share price – because that’s got to be a key driver for you – and running a business.  How do you manage that?  Which is more important to you?

Ewan Downie: We have some very large shareholders.  We have several in the 5% to 12% range, so we’ve got some long-term steady shareholders.  Keeping those shareholders informed of what we’re doing and how developments are is very important.  We don’t want to lose our bigger shareholders, but we do spend a lot of time on the road marketing to new institutions, new retail groups. 

We’re trying more and more to get retail interest in our stock, given so many institutions have potentially closed their doors over the last few years.  I think we’re a bit more of an institutional star historically because of our growth profile and production rather than just being out there screaming our exploration results.  We kind of tuck the exploration behind the production growth rate.

So just trying to simplify the story. Instead of telling different stories in a presentation, trying to make it maybe a bit more like Barrick and Newmont are doing in Nevada, making Nevada in mind, rather than talk about Turquoise Ridge, Gold Strike and Lea Vale individually.  So we’re trying to package up our projects so that Nevada is a production centre, growth centre, for us.  Ontario is separate and then Mexico.  So really dumbing it down to three stories rather than eight stories.

Matthew Gordon: It would be interesting to see how you do that because I think right now when I was researching this, it just felt like there’s a lot of moving parts and mapping it out was more difficult than I think it perhaps needed to be. What I did like was the team’s attitude to building.  How do you get Barrick involved in a conversation with you?  When that happened? You were a small company.  How did you do it?

Ewan Downie: We identified, and we really found a relationship with some of the people in Barrick through the Greenstone or the Hard Rock acquisition.  Back in 2008, more than 10 years ago, we spent a lot of time approaching Barrick over and over.  I’d say very persistently we pestered them and they sold us a project not too far from our Head Office here in north western Ontario. 

So we got to know some of the people there and then formulated an even stronger relationship with Barrick when we acquired Gold Corp’s interest in South Arturo, and founded the building of a mine with Barrick, I think Barrick started to give us some credibility.  And since then we’ve done a joint venture with them at McCoy Cove, at the property surrounding our Cove deposit and we’re acquiring the Rye project from Barrick subject to a backing.

So right now we have essentially four projects that we’re moving for on sort of relationship, but it grew from an early acquisition ten years ago.  What we’ve made an effort to do is stay in touch with these people whom we work because you never know what future opportunities may come out of these major producers going forward.

Matthew Gordon: It’s a very reassuring name to have there, and obviously with their recent merger there may be more spin offs to be had if they open the door to you. I’ve really enjoyed that as a first run through your company.  It was a pleasure talking to you and understanding a little bit about the thinking and mentality here.  I’m very much looking forward to seeing how South Arturo develops and Greenstone because that sounds key to the growth component of what you’re doing.  So thank you very much for your time.

Ewan Downie: Thanks for having me on and hopefully we can talk again in the near future.

Company page: www.premiergoldmines.com

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

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

Orezone Gold Corp (TSX-V: ORE) – Getting it Right in West Africa and Look at Imminent Re-rate (Transcript)

President and CEO of Orezone (TSX-V: ORE), Patrick Downey, is very optimistic about what they have and how they can drive this business going forward. The technical aspect has been de-risked significantly, they have lots of drill data, a much more simplified mine plan from the one they inherited, good jurisdiction to work in, a small CapEx, short time to production, and possible about to re-rate when the imminent debt component is finalised. One we have a lot of comfort with and take great interest in Orezone Gold.

A great West African gold story, with a very simple and effective approach to mining. The management team has a long track record of making shareholders money by creating meaningful mining businesses. They have increased their NPV by $140M since we last spoke to $360M.

Their project in Burkina Faso is surrounded by large Gold companies such as B2 Gold, West African Resources, Endeavour, Semafo. They also have large gold investment funds such as RCF, VanEck, Equinox and Sun Valley invested.

We discuss these topics and more:

  • Recent News and Updates: What caused the Share Price to Spike?
  • Simplification of Processes
  • The Management Team & Remuneration
  • Company Financials and CapEx
  • Will investors make money and what should they know?
  • Managing leaks in to the market
  • Debt and Remodelling the Drill Program

Click here to watch the interview.

Matthew Gordon: Hi Patrick, how are you?

Patrick Downey: Very well. How are you?

Matthew Gordon: Not bad. Now we saw each other back in May at the 121 Conference.

Matthew Gordon: And you were doing the rounds there.

Patrick Downey: That’s correct.

Matthew Gordon: One or two things have happened since then. Perhaps we should talk about those.

Patrick Downey: Yeah. I think when we talked at 121, we were just at about the final stages of our updated Feasibility Study. It came out actually better than we originally thought it would. We said in January that we were going to build a 1.2Mt Sulphide plant. It turned out that we were capable of building a 2.2Mt. A little extra capital but significantly better economics.

Matthew Gordon: Well we should talk about that because obviously your share price when we met was at $0.39. It’s now at $0.62, you’ve had a nice bump there. I’d love to take all the credit for that but I think it’s down to the Feasibility. So we better talk about it. So why don’t you give us the highlights there. Because the the NPV is changed significantly. Some great numbers in there.

Patrick Downey: So essentially, in 2018, the NPV was around $220M. What we did was we really planned this on the basis that we could build the Sulphide expansion from the cash flow of the first couple of years of oxide. The oxide in the first 2.5 years are really high cash flow because there’s really no pretty stripping, low strip-ratio. And it’s the highest-grade oxides right out front. So that’s a pretty simple circuit build. So we looked at the Sulphide. We expected to be able to build a 1.2Mt per annum plant there. But once the Reserves started coming together, it became pretty obvious to us that we were going to run out of oxides before we ran out of Sulphide, so we married the two flow sheets together to come up with a 2.2Mt per annum Sulphide circuit. So that comes in in year three, and it adds around about 700,000oz of recovered Gold. So we had about a 1Moz in the first of the oxides, we’re now at 1.7Moz. The margins, as we had in those ounces, are significantly better than the margins of the oxides at that time.

Matthew Gordon: So what’s the additional cost to you for doing that?

Patrick Downey: There’s a small resettlement program at the bottom end, which is an area right to the south. Including that we’re around about $65M. And we could have built this for significantly less, probably $10M or $12M less by integrating the Sulphide circuit into the oxide circuit. But we made the conscious decision to build a separate circuit so that we could operate the oxides fully independently from the Sulphide. So when you crushing Sulphide, grinding them, you’re not interfering with the oxide circuit. They only actually blend once you put them into the CIL circuit.

Matthew Gordon: So that’s getting a wee bit technical. Okay. You could have saved $10M to $12M, but you chose not to because you can keep them separate. That’s got to be an economic decision at some point. It’s not just about what you’re saving?

Patrick Downey: It’s an economic decision from an IRR or an NPV point. And also purely from an operational viewpoint. The oxides are no crushing. So you don’t have any of that. It’s very simple grinding. It’s significantly less cost. You add in a Sulphide mix there and you can have…we believed you could have operational issues going forward. So this just allowed us to completely separate that and make it a much simpler circuit.

Matthew Gordon: That sounds more like what the decision is based on, in terms of it is simpler. Because the IRR hasn’t moved much. You’ve moved 1.2%, you’ve gone from 42.6% to 43.8% so it’s not a significant shift but obviously the NPV, over $140M more. So it’s impressive. You used a phrase with me last time, what you bought was overly complicated and you’ve tried to simplify it. Would you say that’s the secret sauce?

Patrick Downey: That’s the way we want to keep it. We’ve always made this so that…really when you put in a Sulphide, a big SAG mill which we’ve got there, a Semi-Autogenous Grinding  mill, you do have periods of time of about a week where you have to do complete re-lining of that SAG. Your plant’s down. And that’s fine. But the way we’ve done this, when that’s happening, the oxides can continue running. We don’t interrupt them. It’s a very simple circuit in places like Africa that’s a real bonus. And we do it because the CapEx for the for the oxide is reasonable. And the CapEx for the Sulphide is very reasonable because we’re not adding CIL, we’re not adding tailings. We’re just adding a bolt on section. And that’s what that’s what really drives the the NPV.

Matthew Gordon: So again I want to talk about a few things. We can talk about the project as a whole, you’re in the right postcode. You’ve got B2Gold, West African Beso, Semafo. Everyone you need to be around to endorse, this is for people new to this story, you’re in the right place. You also talked us last time about de-risking and you spent a lot of time in terms of talking about the de-risking of the project. So why don’t you tell people some of those things. I’m trying to give them a sense of the type of management team that you are.

Patrick Downey: Well, we’re a very operational focused team. Generally when we look at a project, we look at it from ‘how will we will we operate and maintain this and make it simple’. We visited a lot of projects, not just Gold mining projects. For the oxide, we looked at it from the point of view of handling this sort of material. It’s fine grained, it’s got great properties in the sense that you don’t need to crush it, minimal grinding. But it’s Clay, it’s sticky in the rainy season, how do we get around that? So we designed the front end with a little bit more capital to allow us a simpler operation. We visited Nickel laterite projects, we visited Bauxite laterites. And we came up with some great ideas from those operations that we’ve been cooperated into this. On the Sulphides, we looked at it and said ‘well look, this has to be a crushing grinding circuit’. So if we blended in with the oxides, now we’re adding a level of complexity there that we don’t need to add to the oxides. We’re going to need it for the Sulphides. So we looked and said ‘how do we simplify this from an operational point of view’. So we made it totally separate. We can look after it. It’ll only ever deal with Sulphide rock. So when we have to maintain it and line the SAG mill etc. we don’t interfere with any other part of the operation. It can all be done with a small specialist crew that do not have to worry about getting back up in two days or things like that. And when we talked to our operating team about going forward, they loved that aspect of it. Doing this gives them that flexibility.

Matthew Gordon: I just want to point out, your AISC is low. You’re at about $730 you’ve talked about and I’m sure you will refine it over time. You’ve reduced technical risk, you’ve got…the thing that interests me is the small CapEx number. It is a relatively small CapEx number which I suspect you’re going to deal with using debt? You’ve said you’ve had some debt conversations? So how are they going? What’s happening?

Patrick Downey: They are progressing very well. One of the aspects of adding the Sulphide to the  project is that you still only have to borrow the money in debt terms for the oxide project. But you’re adding significantly more ounces against that and you’re not having to go to increase your debt load for the Sulphide. So we believe that gives us much more debt carrying capacity on the front end. So it really, essentially reduces the amount of equity we would have to issue at the front end going forward. So that’s a very, very important part of this project. Even when we built this Sulphide project, we never go cash flow negative during that period of time. We’re still cash flow positive. So we can build the Sulphides out of cash flow and we can continue to pay the debt for the oxides right through that. And we have a longer mine life of which to amortise that debt against.

Matthew Gordon: Yeah some really, really interesting, what people call Catalyst moments, hopefully for you. And when we talked last you said once we get this debt in place, I think we’ll get a re-rate, because people will have some sort of level of comfort as to when we’re going to get into production. Do you think, the way the market’s going with obviously being Gold up and you’ve seen a bit of a bump since the Feasibility Study has come out, or maybe partially because Gold is up as well, we don’t know who’s going to take credit there entirely. Do you think you’re going to get this re-rate?

Patrick Downey: Yes. I think when we’re able to announce the quantum of debt that we can carry against the project, and that the project can pay back, then people will know what your equity piece will be and then they’ll know that it’s not one of those equity pieces that will end up crushing you. The NAV per share is is really badly affected.

Matthew Gordon: You’re about $0.2 on your EV/NAV ratio which is obviously quite low. You’d hope to be nearer $1, wouldn’t you?

Patrick Downey: Yeah. So what we want to do there, is go out and in generally August, September, probably September to get the story out more. Get people to recognise the story. I think hopefully we’ll be able to make a few moves to show people where things are going. And at that point we would essentially look at where we put the pin in on the debt at that stage. So the debt is proceeding very well. We’re going through the technical due diligence now. We would expect that to be complete sometime in late August, early September. And then at that point we’ll start to see what level of debt we can carry.

Matthew Gordon: Are you getting any pressure… obviously things are moving along and the share price that has taken a bump recently, going up which is great. Are you getting any pressure from people like RCF, who we talked about them a very technical partner and committed partner. But they came in at $0.80, they must have some degree of comfort as to where this is going. Probably long term players, maybe they were never worried. What are they talking to you about?

Patrick Downey: I would frankly say they really, really like our project. It is one of their key projects. They tell us. They’re a great supporter, we have been very communicative with them, we have monthly updated management meetings with them. They’ve been to the project, they’ve now seen the study. They’re now taking all of the technical data from the study to see what it means for them. But I can tell you, they would be more than happy to add to their ownership at this point. When we sat down with our RCF, and we knew each other from a long time before on other projects. When we sat down with them, had a program and a plan as to how we would execute and I think they’ve seen that we have absolutely executed to that plan. Which doesn’t always happen for various reasons, and that gives them that great degree of comfort.

Matthew Gordon: That’s interesting point, I’m sorry to segue off of your company because we’re here to talk about you and what you’ve done Patrick, but it’s an interesting point. We were talking to a bunch of investors around this component of how do you keep information, reports whether it be an FS or otherwise, secret. How do you stop leaks from happening? As a CEO, how do you manage that process? In my view is, there must between 10 and 100 people touching that before it comes public knowledge. What’s the process?

Patrick Downey: Well the engineers are generally very focused and doing the engineering. They’re not focused about leaks or telling people. And they’re not generally market minded really.

Matthew Gordon: I know that but it just, it gets out you know.

Patrick Downey: Well when we set out to do this, our technical group…internally we did a fair amount of work to figure out was this worthwhile going forward and doing. So we put out a press release in January that was very detailed in what we were doing and how we were going to do it and what we felt it was going to look like et cetera. And it was all based on on technical fact, that was already generally in the market. We weren’t telling anything that we were guessing at or whatever. And then when we walked through it with our shareholders, we generally…if you just give them ‘look we think things are going well, things are on track, we should have the study by Q2’. We think it allowed something in the region of $80M to $100M to our NAV. It obviously turned out to be better than that. And so you’re on track. Generally people can read. When you’re sitting in front of investors and they say ‘well when you when you talked about this a few weeks ago you were saying $80M to $100M, do you still think that?’. If you hesitate they’re going to go ‘oh that’s not good’. If you’re confident and say ‘well at this stage, yes I would believe that’, that’s what we’ve said in the public market. We have no reason to change it, so you keep it in that way. So there is a fine balance between keeping people continually informed, your disclosure and making sure that you’re not saying anything that’s not in the public market. We are generally very conservative about how we go about it, and we take a conservative viewpoint. We generally don’t actively market during the critical phases of the study. We only go out when we’re ready to talk about it as we’re going through it, but not when we’re in the critical phase. We do not market. We do not talk about it..

Matthew Gordon: Would you agree that sometimes in the market it perhaps doesn’t go that way? I appreciate how you manage it.

Patrick Downey: Oh yeah absolutely. There’s times when you go ‘well that wasn’t right or how come you said this’. So things do get leaked out but I would say from our point of view, we were very, very close. I mean even my directors, I kept them informed but until I knew where the numbers were almost absolutely right. It was only then that I said to the directors this is where I believe we’re going to be and we’re going to be ready to put the pin in it in two weeks.

Matthew Gordon: I appreciate that from you, we like your story and we like the way that you run a very tight ship. You’re one of the most active retirees I’ve ever met, as you said last time.

Patrick Downey: My wife says that as well!

Matthew Gordon: Because it touches on one of other subjects which we keep getting asked about, which is around salaries and remuneration and so forth. You guys have put your money where your mouth is and you’re remunerated along with the shareholders. So you are one of the few companies where you say we are aligned with our shareholders and mean it. We have been getting lots of questions about highly paid mining executives. But I think you don’t perhaps fall into that category, which is great. Let’s talk about one last thing if I may. You are going through a resettlement program at the moment, which we think is quite important obviously. Again another thing where you can cut costs, but you haven’t. Want to tell us about that?

Patrick Downey: No. And I think I really have to give a lot of praise or praises to the guys down there on the ground who have been running with it and doing all of the work in the background, they did a fantastic job. We approached this again in a very systematic manner. When you are building a mine, you are upsetting other people’s livelihoods. And generally you have to move and it’s very well controlled and managed in Burkina because there’s been a lot of mines built. But we went about it whereby, we didn’t go cheap on the houses, we got everybody to sign off. But one of the key things that we felt was like, these guys are signing off on drawings and maybe they don’t fully understand. Let’s build sample houses, it is going to cost us a little more. Let’s build sample houses in each village of the type of house we’re building, let the communities come inside, look at the finished product. Give us any changes or issues out there that they’re concerned with. We did that. We did have a couple of changes actually. It was around capturing water and stuff that they were going to use and they were extremely happy. That got out to the authorities in the sense that the mayor, the ministers; we had a wrap opening ceremony in May. Sort of unprecedented in that part of the world. We allowed for a thousand people to attend, three thousand people attended. That’s all of the communities. Everybody turned up. It was a fantastic day, a fantastic celebration. And it goes to show you the work that we’re doing, not just in building houses but in the livelihood restoration that we’re doing, the work that we’ve put into community programs, water, schools, restoration, all of those things. I got to say I’m extremely proud of that. I’m extremely proud of what the guys have done and how well it has been managed and executed on the ground.

Matthew Gordon: It’s very very important. It means a lot to people there for sure. OK. We are going to finish up. Can you tell me, you’ve extended the life of mine, 10 year life of mine. 133,000oz near 134,000oz over that period of time. You’ve done your FS, you are looking at the debt position at the moment. Will get into production. You are $130M market cap today. Something wrong with that picture. What should investors know?

Patrick Downey: Well I think that we had to little bit of the legacy of what occurred in the past, and we were getting out of that as we move forward here. I think also as they see us continuing to develop the project, the confidence level will come back to it. We are getting a lot more inquiries about the project and the company. The other key thing that I think will happen and it would be a catalyst here, we have been drilling reasonably quietly, but we decided that there was a model here that we should focus on particularly in what’s called the hanging wall of the project, the Maga Footwall zone is very continuous. That drilling was very successful, the modelling is coming up, it’s very exciting. Some of the grades that we have there are seven eight times the average grade of the deposit. It’s wide open at depth. So that’s going to be I think a very exciting catalysts going forward. We are going to put aside some money for that over the next year to do more drilling. And I think once that people understand what that means, drilling still gets people excited about a project. And it’s not just building it, it’s also showing that it’s got a long life and it’s got great upside. And so we’re just about to finalise that model and then we go to the board with a proposal to set aside a certain amount of money to drill it over the next 12 to 18 months. And I think that would be another big catalyst for us.

Matthew Gordon: In the short-term?

Patrick Downey: In the short-term, getting the debt in place and showing what the debt carrying capacity is. Maybe some other moves on the debt which we’ve got a lot of irons in the fire here that we’re looking at. That will reduce the level of equity that we have to put in. And as you rightly said, we are in there alongside our shareholders. We are big shareholders of this company. So NAV per share for us as employees and management is extremely important. It’s not building just for the sake of building a project. It’s building a profitable project that returns equity to the investors, and that’s what we’re looking at.

Matthew Gordon: Patrick, I appreciate your time today. It’s a great summary. Great to speak to you again. I think it’s a really, really strong project in West Africa. People should be looking at it. We look forward to speaking to you again soon sir.

Patrick Downey: Yeah. I hope the next time I speak to you, we will have double the share price again.

Matthew Gordon: That would be lovely. That would be lovely.

Patrick Downey: And I will give you credit!

Matthew Gordon: Finally, finally! Well thanks again for your time. We’ll speak to you soon.

Company page: https://orezone.com/

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Equinox Gold (TSX-V: EQX) – Increase of Market Cap to $725M in 18 Months (Transcript)

We interviewed Christian Milau, the CEO and Director of Equinox Gold (TSX-V: EQX). We ask him about potential M&A, and where the potential shareholder gains are coming from. Do they need to diversify? Is there a retail investor story here? And will the Gold price stay steady?

Really robust conversation and an insight into some of their problems and challenges. This is the coming together of 3 Gold assets, 2 in California and 1 in Brazil, and 3 big names in the shape of Ross Beaty, Richard Warke and Lukus Lundin. A strong management team, who has invested a significant proportion of their own wealth, and is incentivised on deliverables and share price. They pride themselves on being in the lowest quartile for salary in Gold companies. This is a low-grade bulk tonnage business – so it’s about moving dirt effectively and extracting Gold efficiently. Achieving a market cap of $725M in 18 months is no mean feat.

Christian talks through their strategy and business model, including their 5 year plan. Long-term planning is the game, not short-term decision making. They have access to cash if they need it. Their Aurizona Gold mine is getting in to production which is important to the market and they feel they will do this following some delays caused by heavy rains.

Some highlights:

  • The start of Equinox Gold and how Ross Beaty got involved with their new partner.
  • The three Assets, bringing them together and issues that had to be dealt with .
  • Company Financials: a $725M Market Cap and the costs of the Assets.
  • Mining in Brazil: positives and negatives.
  • Equinox Gold Business Plans: Why a Convert? 5 year plan?
  • Share price and The Gold Market.
  • M&A Activity?
  • ETF’s and their impact on Equinox Gold.
  • The Upcoming Year, Remuneration, And Reasons to Invest.

Click here to watch the interview.

Matthew Gordon: We spoke back in February. A lot’s happened since then and I guess we’ll get into that in a minute. But why don’t you kick off for newcomers to the story, gives us a 1-2 minute overview of the business.

Christian Milau: We’re now a mid-tier Gold mining company based in the Americas. We’ve now got one producing mine in Brazil, which we’ll talk about, but also we’ve got a producing mine in California and we’ve got another we want to build in California starting in the next 6mths here. So we’re now going to be a three-asset company that’s focused on the Americas with roughly +200,000oz production today and with a goal of going to 400,000oz-500,000oz of production in the next few years. So we’ve got a nice platform in this kind of market where Gold seems to be picking up.

Matthew Gordon: Let’s get on to that in a second. We’ve got a few questions from subscribers. I’d love to throw a couple of those at you. They’re really about the origins of this all because you’ve brought together three Gold assets. You’ve got some big names attached to those assets: Ross Beaty, Richard Warke, and your team, obviously.  Tell us about that first conversation that you had, how did this come together?

Christian Milau: Yeah it was interesting. I guess with Ross, he had a Brazilian asset and company called Anfield back in the day, a couple of years ago. We started with Luna Gold which was the Brazilian asset in Arizona which we now have put into production. We had some commonality and we obviously interact in Vancouver on a regular basis, see each other – it’s a small city. And we always talked about ‘how is it going in Brazil’ and ‘what do you plan to do in the future’ and we realised that we had the same vision and goal. We both want to create sort of that mid-tier to larger Gold mining company at this bottom point of the Gold cycle. Ross’s vision is really around building something in Gold, it’s very similar to Pan American Silver, which is now an 11-mine company, which is a good larger silver company, wants to do the same in Gold at this point. And my view is, do the same as we’ve done recently, myself, and some of their team, and Endeavour Mining. And start with one asset and try and build it into four to six assets over time. So we really had the same vision and Ross said he started his career with Equinox Resources back in the 80s and 90s and that was a success and he wouldn’t mind book-ending it with something like this at the end and we suggested the name Equinox Gold and he loved it. He said ‘it’s a great end to my career’.

Matthew Gordon: So it isn’t one of those the-sum-of-the-parts stories? You get some people who are very protective over their assets, they want to do their thing and they don’t need any help. But you guys all seem to have a track record of bringing together assets and building something bigger and, therefore, hopefully, better for shareholders. Is that what happened?

Christian Milau: I absolutely believe that. I mean, to put it in real context we sat in a room together myself, and Greg on our side, Richard Warke from the Newcastle side, and Ross from the Enfield side and we sat in a room for a couple of hours and we said, with no advisers, no lawyers, anything. We said ‘Hey, what is our vision? Is this common? Who could run this, who wants to be the face of it and contribute to the financing of it’. And we actually came up with a board and structure very quickly, and a valuation effectively that at least got it kicked off. And that was all because we had the common vision. Richard Warke again has worked with Ross over the years in building companies like Ventana and other things. And Ross tends to be more of the market-facing person of the group and was very happy to take the chairmanship. And obviously myself and the team are very happy to run the business so there was no stepping on each other’s toes, it really fit together nicely.

Matthew Gordon: So how does something like that work? You’ve got two assets in California and you’ve got one in South America. They’re all Gold. So there’s that in common, but they’re all in slightly different phases of development, so how did you imagine that coming together and how’s that indeed happened?

Christian Milau: It almost worked better because they were in different stages or phases. So we had the one producing asset in California. So that’s kind of our starting point we can actually use that for leveraging off knowledge skills etc. And recording all these different techniques of managing the business and then we had one in construction in Brazil. And then we had a third one which is sort of in that study phase, in the pipeline that could be constructed after we finished Arizona and Brazil. So, when you put them together you actually get a nice runway to becoming a mid-tier producer into the system. Rather than just slamming together three operating mines with different cultures, we are able to actually put them together, build the culture as we go.

Matthew Gordon: Because I actually watched our interview from February this morning, as a run through, remind myself what we talked about. The big theme that came through there was, not only have you got these three assets, but you have access to cash. You’ve got… Both Ross and Richard are very capable individuals, have track records, you are too. But cash wasn’t an issue for you. And where we are in the cycle, we talked about how advantageous that is for you in terms of being able to pick up assets cheap, and perhaps we can get onto M&A in a minute, but just again to remind people on the financial side, you know, where you started. You had these three assets, some assets you offloaded, something on the Copper side. But what did you start with and how did you value those and lets maybe get into where they are today?

Christian Milau: So when we did put this together we had obviously the three Gold assets, which were going to be the core to our business. We had a couple of our columns smaller, one was a processing mill in Peru, one was a small Gold project in B.C. And then we had a bunch of Copper assets. So what we decided was to focus on the core value-creating Gold assets. File out the Copper assets last summer into a separate vehicle which I’m happy to talk about but we’re excited and we still own 40% of Solaris Copper. Then we sold the mill in Peru to a local operator, I would call it. And then we sold the B.C. Gold asset just recently to a local group here because they were too small, not going to create enough value in a company now our size. We’re now $600M-$700M market cap, so we’re focused now on the pure Gold assets of scale.

Matthew Gordon: So do some simple Math for me. So you brought three assets together which were valued at what?

Christian Milau: Oh boy… I guess when we brought them together we bought Mesquite for just over a $150M. Aurizona and Luna Gold when it came in, I can’t remember the exact valuation, but I’m gonna say it was between $150M-$200M. And then Castle, again, was $150M-$175M and we put them together. The nice thing today that we’re excited about is, you see that our market cap is now greater than the sum of those parts.  We’re now $725M.

Matthew Gordon: $725M. You told me this morning.

Christian Milau: There you go.

Matthew Gordon: But how much money have you raised in there as well, which is obviously GNA, CapEx, etc.?

Christian Milau: So we’ve probably, during that process, we probably raised, I’m going to say it’s $50M, maybe it was up to $70M to help finish the funding on Aurizona in Brazil. But what we’ve really done on the funding side that’s more interesting is we’ve restructured the balance sheet completely, which, again, I’m happy to explain.

Matthew Gordon: Tell us about that because obviously we’ve seen mention of Abu Dhabi sovereign wealth fund in there and, obviously, project refinancing as well. So why don’t you give us that before we get into the projects proper?

Christian Milau: So everything over the last 18 months has probably moved faster than we even expected. We’ve had great support from guys like Ross and Richard and some of our core shareholders. And so we originally had a project finance loan from Sprott that was coupon 10%. That was financing the build in Brazil. It’s expensive money but we our single-asset development company was unfunded when that went into place, so it was market. Then we had an acquisition facility from Scotiabank and a group of other lenders that came in to acquire Mesquite. So you’ve had siloed structured financing or debt that sat at the asset level. What we did in, I guess it was February we announced and we’re just completing it right now, is we’ve paid out the actual loan that was project finance in Brazil. Replaced with the MOU Batalha convertible note, which is sitting at the corporate level and paying a 5% coupon, and brings in a partner that has a base of a trillion dollar sovereign wealth fund that is there to help us grow the business into the future. So they’ve replaced an expensive debt with, sort of, half the coupon cost but they’re also there to grow long-term as a shareholder and funding partner. So you bring that up to the corporate level. And the second piece was we took the same banking group that funded Mesquite and repaid and refinanced that acquisition loan and brought it up to the corporate level. And now it’s a corporate revolver that we can borrow and repay. It’s a little bit larger instead of $100M, it’s now $130M. So we now have all of our debt sitting at the corporate level, all of our cash flows are fungible and free to move amongst all of the assets in our organisation and they’re all Growth Partners. So as we grow, they all want to be able to fund us in a bigger way.

Matthew Gordon: Yeah, again we did talk about that last time and I do want to talk about it in a minute, but let’s just quickly go through, I think, a point which is talked about in the chatrooms, etc. And that’s your ability to prove the economics around the Brazilian asset and get that going, bringing that to market. So where are you with that?

Christian Milau: So we finished the construction in, I would say, early May and we were commissioning the asset. It was probably about a quarter behind, so a little disappointed with that.

Matthew Gordon: Why was that?

Christian Milau: Basically, there was no major factor. I mean, the rain was very heavy this year. I think we’ve had 3.5m of rain in the first three or four months, where normally you get 1m-2.5m for the whole year. So it’s a very heavy year. So doing electrical terminations and then the rain is probably at 50% productivity for that work. There’s a bit of extra piping and scheduling work at the very end so nothing that I would say was a major incident, like the mills falling off the trucker that ship or something.

Matthew Gordon: Right. There’s no issues from the Brazilian government? Obviously, a very high profile incident earlier this year but are they more nervous?

Christian Milau: No, the government… I give them their credit. They actually delivered us our operating license the day we poured Gold. Normally it comes about 6 months after you pour gold. So I would say, actually, a real tick to them, a check in that box where they delivered it early. And in terms of inspections on tailings dams, which obviously are a big thing in Brazil right now. That incident happened early in the year. They were inspecting all the dam sites around the country and they did come to ours, of course.  and we were just in final stages of getting it into readiness state of readiness and basically we our design is not an upstream down like Valley had there and had the issues with which is inherently less able. This is downstream in centre line which is inherently much more stable and we’re very happy with the inspections actually.

Matthew Gordon: So what do you think has happened there? Do you think, obviously it can go one of two ways. The government, or the Ministry of Mines can get very very nervous and take longer to get things done. Or, because it’s damaging to the reputation of what is a big mining country. They try and accelerate things to say we’re open for business. What’s your sense of what’s going on there?

Christian Milau: I almost think they’re accelerating things at the moment because of the urgency and the need, with the recent incidents there. And I do think when they’re not happy I I would suspect it was going to take longer to permit. There will be more hurdles to jump. But if you’re doing things on the international standard basis, that is expected of companies like ours, you really shouldn’t have problems. And we haven’t experienced any.

Matthew Gordon: Right and so the team that are down there, they are experience with South America and Brazil in particular. A quarter behind. But unfortunate event is what you’re going with.

Christian Milau: Yeah. And so what we said was ‘all right, sorry we’re a little bit behind a little bit over budget’. We were probably about 10% over budget overall which in the scheme of things, three months and 10% over is not the end of the world’s. It is a bit of a shame. But since May 14th when we did pour Gold, we’ve now gone for about 30 days of production and we are now producing or putting through the mill more than the rate of capacity. So I think we’re at 8,000 tons a day at our capacity and some days we’ve gone up to 9,000 – 10,000 tons. So it’s very nice to see that you’re 10% plus over, the mill is actually capable of performing at the expected levels.

Matthew Gordon: Right. Was there any doubts in your mind as to whether Brazil would work or not? Or has it all going swimmingly?

Christian Milau: I think anyone who would say there isn’t a risk or doubt, would be kind of kidding. But we did feel that we were investing in this project to make it successful. The idea was not to cut corners. Because of the past history here, when they originally built this in 2008 or 2009, they didn’t have a proper crusher at all and they didn’t have a proper milling circuit, it was a fairly old six year Asbestos mill from Quebec. So it was almost setup to have challenges and it still performed okay. So we figured if we spent the money and put in the proper equipment with professional contractors, you were bound to have good success here in due course.

Matthew Gordon: If I may come back on the on the refinancing that you did. I know you’ve got all at   corporate level which is much easier to deal with and you’ve re-financed it. You’ve got a little bit more cash there, a bit more flexibility. Are you happy with the with the terms there. Or is it a case of ‘actually, I like who it’s from’. Because obviously the Abu Dhabi sovereign wealth fund has a lot of cash available and if likes what you’re doing, that bodes well for M&A activity, which we talked about previously. Were you happy with those terms.

Christian Milau: We’re extremely happy. When you look at that convertible bond, we have a partner who is not out there shorting or hedging your stock, like a normal convertible might be with normal hedge funds. They are a long-term investor. They have no short term time horizons. They wanted to work with Ross, and Ross has probably been talking to them on and off for at least 5 or 10 years. I think they were excited to partners someone to build a great Gold mining company that they could trust. So I think we got really good terms. And we looked at various market comps and what we might have been able to do in the market I think for exceeded those.

Matthew Gordon: So why a convert? They could’ve structured it any way. They’ve got the money, they could paper it up anyway, so why convert? Why did that work for you?

Christian Milau: It’s interesting. At this stage of our involvement and growth and development, they would like to be a long term equity holder but they’re used to actually making investments. I’m going to use a big round number, but a half a billion dollars, so it’s a very small investment of $130M for them to come in. There is a debt instrument in place already that could be re-financed and clearly replaced. And even that link ultimately to being an equity investor, which we would like them to be in the long-term because I think there would be a long core stable shareholder along the likes of Richard and Ross. So it almost this hybrid interim instrument that allowed you to solve your current debt, expensive debt situation, but sort of  link them into a long term equity position. And it’s a smaller ticket than they’re used to so it does I guess come in a form that gives them a little more security on day one than it would if it’s pure equity, a small check basis.

Matthew Gordon: Yeah. What is the coupon on that?

Christian Milau: 5%.

Matthew Gordon: 5%. OK. Pretty good. And what are the rest of the terms on then?

Christian Milau: So it’s a five year term. It’s 5% coupon. It converts at a 25% – 27% premium depending what share price you’re using. That’s $1.38 Canadian. Interestingly  when we announced it in February, the share price went up. And we’ve seen so many people announce convertibles that are market oriented, where the actual share price goes down. People are shorting your stock. Ours did the opposite. So we saw that as a nice vote of confidence that we had a long-term partner. And one of the biggest things I had was I was at a conference time, I had a lot of other peers come to us and say ‘can you make an introduction? How can we get access to that capital. It looks like a great partner that’s there to stick with you through the ups and downs of the cycle’. And right now, as you know, we’re towards the bottom end of our cycle and the smaller the company the harder it is to finance. And I think we’ve been well above our weight a little bit there.

Matthew Gordon: Yeah to just stay on that point, you did you did have a bit of a spike and then it kind of came down as his low as $1.01 on a couple of occasions, and your now back up at one $1.31-ish again. What do you think those drops were?

Christian Milau: Well the one thing for sure, Gold had its dip although it’s obviously much more positive, it hit $1350 this morning. So it’s much more positive. We’re in a $1270 to $1280, $1290 range. And below $1500 I see there’s not a lot of conviction from some of the precious metals funds, some of the generalists. They really want to see it pop over $1350 to really get some confidence. The other side was we were right in that crux period of finishing off Aurizona and until you’ve announced you poured Gold or you’re in commercial production, people have their doubts.  I guess rightfully so, they want to see that there’s no hiccups and major issues along the way. And we weren’t able to announce that until May 14th. So we had a double whammy of those two items I think.

Matthew Gordon: MOU Batalha, they are in. They are a partner now, equity and debt. What are there expectations? I see no board seat for them. But they have a big say in what they expect you to do, presumably. Or are they are a passive investor?

Christian Milau: No they do have a board seat.

Matthew Gordon: Oh they do, sorry.

Christian Milau: They are partners with Ross in many ways here and they see themselves on a pro forma basis, they would be an 18% shareholder if you were to convert at all. So we think of them as a core shareholder also, in the long-term. We very much want to work with them and their vision is actually very similar to ours, and they want to grow into a larger-scale Gold mining company. So we will definitely look to them to support us on growth activities, being acquisitions or growth internally.

Matthew Gordon: So if we go back to the first question, which is how do you guys come together and what was it it was and it was a common thought about what you could do. With MOU Batalha on board is that thought changed? Have your horizons expanded?

Christian Milau: I think it gives us maybe a bit more impetus to move quicker or at least it gives us the ability to think a bit more actively about how we can grow this business now because we know there’s availability of capital in the near-term and we don’t have to necessarily go and source it from new sources, if we do find an acquisition opportunity.

Matthew Gordon: Yeah so that so that saves a lot of time. Again just remind people the type of company you are. You are a bulk processor of Gold. You aren’t chasing veins around. So just quickly describe that for people because I want to ask you about that.

Christian Milau: Yeah. Our three, or two operating mines, and our third to come into operation are really are larger open-pit mines. So they’re big dirt moving exercise as you described it. Our goal here is to build scale and to be a growth oriented company and we’re not shying away from growth. A lot of the bigger companies in this part of the cycle have been paying down debt. And I’d say call it right-sizing or making themselves smaller and selling off assets. Where we’re trying to actually do the opposite because as the cycle does turn, we will have already been ahead of that curve and we’ve set a target. And it’s maybe a round number but we’d like to be a 1Moz a year by round the 2023.

Matthew Gordon: What are you today?

Christian Milau: So we’re probably 200,000oz and 230,000oz today. And with the assets we have in our pipeline we could go to 400,000oz to 500,000oz so roughly halfway there. And so the goal, we’ll need to add another at least two assets I think along the way to get to that sort of mark. And it doesn’t have to be a million, but it’s a good target.

Matthew Gordon: Yes. Nice round number as you say. So if I look at the type of company you are, the type of business that you are good at being, this large earth processing business, you’ve got the skill sets there. To find those types of assets globally, at the moment, well I know you’re kind of America’s focus but I guess it’s no restricting you. People don’t sell good assets cheaply. The Gold price is going up. So have you guys found things that you’re looking at or are you constantly evaluating now? What’s the chances of some M&A activity this year?

Christian Milau: We’ve been really inward looking because of finishing off the build in Aurizona and finishing off the integration of Mesquite. So I’d say we hadn’t been looking externally but I would say the last month or so, Gregg and Ross particularly have gotten really active again, thinking about what we could acquire. And so you look at several categories. You’ve got single asset producers out there, you do have a few multi-asset producers that are listed. You also have the major Gold companies who have been merging and there will be some castoff assets or some they’ll sell. They may be good or not good but they also might be just too small for them. And that’s one of the challenges now as a big company. And they might fit us perfectly. There are a few private assets owned by private equity groups that will come available in the next few years. And then there’s the smaller strategic assets that might be earlier stage for us. Maybe they’re not perfect for us today but could fit into our pipeline in a year two. So there’s a bunch of different categories, and we prefer to be in the Americas to start but we aren’t completely closing the door to Europe and Africa and Oceana necessarily.

Matthew Gordon: I think there’s a lot of people with a lot of ideas and I think it’s like when a celebrity turns up in a capital city, people talk about it and Ross has been spied at various locations so people are making assumptions. Not least various parts of South America. So it’ll be interesting to see where that goes and where that leads. But now is the time. From what you said before, now is the time. Now while it’s cheap, the the price of Gold is going up slowly and the confidence is slowly- well would you agree with that? Is it slowly returning?

Christian Milau: I think it’s slowly returning but it’s still… when you talk to our peers out there… it’s still pretty depressing, maybe not the right words, but people are pretty… they’re struggling to find new money, shareholders, people to get invested and interested at the smaller scale. And I’m talking sub a $1Bn of market cap. Interestingly it was two Fridays ago, we had a big block trade for 20M shares.

Matthew Gordon: I saw it, yeah.

Christian Milau: Sandstorm sold their whole position to a new long-term only fund. Who is not a Gold investor. I mean they do invest in a little bit of Gold, but historically they invested it all across different sectors and they have a good 25 year track record. So we’re really excited to see that kind of money coming into our stock, number 1, but also into the sector where there are people who are generalists, who’ve been talking about investing in Gold, who are now taking some action. And I think this last little tweak here where the dollar hasn’t fallen off a cliff, and it has stayed reasonably strong, the markets are a little bit wobbly. People are looking for somewhere else to invest their money and Gold has become a little more popular. And I think getting close to $1,350 and maybe if we can hold it for a little period here, I think there is some conviction that will start coming back, somewhere above $1350. Could we drop back down? Yeah absolutely. But it does feel a little more positive.

Matthew Gordon: Yeah. I think Ross was interviewed recently talking about the Gold price, and he was saying in the end 2017-2018, even though the Gold price went up, the equities fell down. These are some strange times when normal rules don’t seem to apply. And we talked previously about the distractions of Cannabis, Bitcoin and Blockchain before that. Well Bitcoin is coming back again. But do you think those distractions have gone away and this is just about people wanting to see how the geopolitical dust settles, or it’s just more fundamentally about the dollar?

Christian Milau: I think some of that speculative money in cannabis and cryptocurrency has come off the boil. I wouldn’t say it’s gone away. People are still making some money, but it’s not easy money anymore. I do think consolidation in both those sectors will happen. And people lose interest when they can’t make a quick dollar in the first three months of investment. And I think Gold is seen as a now coming to the right point this cycle. And I think what the markets are rolling over I don’t think anything major is happened there. Yes and the dollar maybe is going have a rougher patch with all these trade issues hanging out there, and all that excess debt in the system. Interesting it’s the first time in years, they’re talking about interest rate cuts. And I’m actually surprised they talking about that so quickly and so soon. That seems like to me a little early, but if we’re talking about interest rate cuts that can only be good for Gold, because it will probably impact the dollar ultimately. Right now Gold is seen as one of those bombed out industries and sectors that most other sectors are not in that position. Most other ones have had a good run over the past 9-10yrs at least at some point. So we are maybe going to be one sector that’s seen as having some value today.

Matthew Gordon: Yeah. Well it will be interesting to see how it plays out because I say I don’t think the normal rules have applied over the past couple of years with regard to Gold.

Christian Milau: Yeah that’s the hard part.

Matthew Gordon: Very complicated. It is very very difficult. You said something like a third way at a throwaway line though no one unless you’re over a $1Bn right. You’re at $725M. You know another acquisition you could get to a $1Bn but like you say, a $1Bn company. That’s that’s nothing, really.

Christian Milau: For the US it isn’t.

Matthew Gordon: For the U.S. It isn’t. But also is that how you measure yourself. Is it market cap? Is it to do with shareholder returns? Is it to do with how many assets he got? Is it to do with the potential exit in the future? What are you targeting?

Christian Milau: The thing that really matters is shareholder returns here. And the reason I say that is, Ross owns 12%. Richard owns about 6%. I have my small stake but it’s very meaningful personally. I really don’t care if I’m a $1Bn company, $500M or $3Bn.

Matthew Gordon: You’ve got a 5 year plan. We talked previously about a 5 year plan. You’ve got a 5 year plan. Today doesn’t matter so much. It’s like whereas the end point. And I assume..

Christian Milau: It’s not a quarterly business. We’re trying not to be overly quarterly results focussed. I mean that’s something where the UK I do actually misheard the system or is on a six monthly basis, where in a way it allows management to put their head down for every six months and focus on the business not have to worry about each quarterly reporting period. But we have that 5yrs plan or working hard to get towards that we’ve now put in place to financiers to allow us to deliver it. And interestingly that $1Bn mark I mean that’s not exactly right. But if you’re not in any of the indices the passive funds and I know there’s a big difference between Europe and the UK in particular v North America now. So much of the money over here in North America has moved into the ETF and passive funds.

Matthew Gordon: I was going to ask you. Has that was being distracting for you? Sorry to interrupt. I was going to ask you, how distracting have ETF’s been to you as a company?

Christian Milau: To distract, partly because you can’t talk and right. How do you convince them to buy your shares because they’re have to buy or have to sell. But on the other side of it, we are not in one ETF or indices but we are getting on the cusp and threshold of getting into them. And once you’re in them, and you have to have that buying. I mean I had someone say to me, there’s 30M shares with the buying coming once again GDXJ. And our key stumbling point is liquidity. But with this big block trade last week or the week before and the daily liquidity over the last few weeks is well in excess of a 1M shares we should in due course get a good shot at getting into the indices later in the year. And what we’re going to do to help that along is work hard to list in the US and to move up to the TSX. We have two California assets with a lot of U.S. shareholders and interested parties in the U.S. I gotta believe that both of those events will help us in addition add liquidity and a really good market.

Matthew Gordon: I think what for sure. So what do you think the criteria is to get on the GDXJ?

Christian Milau: I mean you do need to be a certain size in that and I know lots of companies are a lot smaller than us and they’re listed. But it’s roughly $1M a day of trading. That’s the key one. And it’s over an extended period. I can’t hear it’s 30, 60 or 90 days but it’s long enough where you need to keep it up, and you can’t just have these little blips that’s going to get you in there. So our goal really trade for the quarter at least over a 90 day period, $1M a day plus and look to get out it’s why you exchange the indices later in the year. And part of the other benefit to us is we have two operating mines. I mean we haven’t had an operating quarter yet from more has only got two operating quarters or two operating mines for a quarter or two and you’re in various different stock exchanges have greater liquidity and we’ve had this uptick in Gold. Got to believe that momentum is moving us in the right direction.

Matthew Gordon: Right. I agree with you. I think that’s that’s good news that you’re at that point now. Just on the market still we talked about ATX but you know there are people talk about the sector being under invested. Okay. That means that’s going to be a good thing for you hasn’t it. In terms of what you’re trying to create here the scale of what you’re trying to create right now.

Christian Milau: It’s fantastic in a sense because where we’re trying to build something that will be an investment of choice when it’s not under invested when when that generalist money and the allocation of funds that need to have whatever is 5-10% of their money towards something like Gold or harder assets would be one of those investments choice with liquidity that’s high enough to allow them to invest in our stock but also to get out of it. That’s what a lot of investors need to know is they can get out when they need to.

Matthew Gordon: Yeah. So in a case we just come back to the the assets side the side of things and you’re getting a couple assets into production now. The SEC is the exec. You’ve got a. We talked about 18 previously there a ‘been there done it, got the T-Shirt’ kind of guys, but you’re trying to lower the AISC, increase the margins here. How much time and effort are you spending on that because we’ve talked about a lot of M&A now but can we just look where the projects themselves would have been the issue has been this year that you’ve been trying to overcome an Iowa spike of some angst because it suggests margin to mean. Talks about profitability hopefully. So what are the issues that you’ve identified that you were focused on with your team.

Christian Milau: Yeah I mean for Arizona and Brazil you know getting it ramped up and running smoothly is the first thing and then working on actually making sure your costs are nice and steady and where you expect them to be. So the benefits with Brazil’s we now are coming through that period. I mean if all goes well I hope certainly sometime early ideally in Q3 we’re getting into commercial production. Then we start measuring it on a on a ongoing cost basis. And the benefit but the moment we’ve been trying to make sure that all of our inputs and supplies are as cheap as we’d expect in this type of market where I do think it’s not a huge demand. Things like cyanide and power etc. In these remote regions I think Labor has been pretty good to get recently because Brazil hasn’t gone through a great boom recently they’re probably coming off some eyes a few years ago. So we’ve been only piecemeal call it skilled labor in Brazil our supplies have been at reasonable prices. Power rates are pretty good in Brazil right now. We have hydroelectric power plants and then I think we’re setting ourselves up well with a good mining contractor as well that has great experience in Brazil but key components of the costs you’ve got to focus on locking them in getting good contracts getting good supply. So we rely on it. We’ve kind of come through that period now and now if your mill is getting the good throughput you know your cost just sort of fall out of that. And the other benefit that we have no control over obviously is the exchange rate. And in Brazil right now it’s been in that three point eight to four reply to all. You know historically it’s been lower so there’s been obviously the U.S. dollar has been strong so it’s hit kind of other currencies particularly know I know Australia Canada Brazil have been weak which is obviously a benefit to producers like us in that region.

Matthew Gordon: Right. And yeah I mean if you think I think that’s true if the exchange rate does it does hit people different ways. But just on that I mean this is the whole point about you know having multi jurisdictional deals risking your assets. I mean your Americas focused. Will you continue to do that obviously with this access to even more money than women. We lost hope is not a key driver for you in terms you’re risking process.

Christian Milau: Yeah I think having four to six assets is ideal.

Matthew Gordon: Is it Americas focused? Is that where you are going to stay?

Christian Milau: America’s focused. I’m not saying we wouldn’t go east or west of that but I think it’s easier to run where our corporate offices in Vancouver. Time zones are extremely good for South and Central North America. And travel is actually pretty good. I mean to get to the California site you can cover them both in a day for Vancouver effectively and is a bit further on sleep but I think we can manage it fairly well and turn the times on the communication there’s also travel and we prefer to stay in that kind of time zone.

Matthew Gordon: Okay. And I just want to I want to talk about this coming years in general terms and second budget. Just remind people in terms of your remuneration et cetera and he did tell us last time but I thought it was interesting and worth repeating since you got skin in the game etc..

Christian Milau: So the way that we’ve set this up for me myself and for the other guys started out to now four years ago here we made the commitment that we were an investment company so at the time we put in roughly two to half a million dollars with my continual investments and that we’re probably up to four to five as a management team which line up for us on a personal level as a big investment. ROSS I think in the last year put in about 60 million and so in turned the board and management were fully invested and these are not seed shares or cheap shares these are I in the market belong and block trades buying and financings and doing it reasonably regularly. So I’d say we’re investing alongside shareholders and our exit strategy is really long term. There’s no desire to be selling anywhere along the way here and remuneration on the other side of it. Ross is known to be fairly frugal as a shareholder and a chairman and we’ve taken that same sort of stance. We set out compensation to be roughly in that fourth quartile. So the lower end of the scale we’d like to see that performing in terms of share price particularly but also on the assets will give us a bit more return because we actually met goals and expectations. So we’ve we’ve done a little differently and we’ve not also linked at all to options which some people see as sort of free money. So you have your base remuneration which is fourth quartile then you have your own investments and then you have some long term incentives that generally are linked more performance right.

Matthew Gordon: This is actually I think it’s worth pointing that out and the read the reason is because you know people in Science Forums are subscribers that they go through the accusation. Well yeah they got some money in the game but they’re pulling pulling these big salaries down. So they kind of don’t care they can they. It doesn’t matter to them whether it works or doesn’t work. They are not truly aligned with us. But what you are saying is a significant part of your wealth is invested in this business you are directly lying because you’re buying in the market not options and people need to understand that.

Christian Milau: And probably on a personal level for me I guess a third to a half of my investable net worth is in this stock. Anything that I’m involved in as a manager or a board member I put my own money in because I believe. Why would you get involved in something and expect others to invest it if you told yourself. So right we take it personally in that sense.

Matthew Gordon: Right. So say I say the management’s interest to make the right decisions. You’ve also got Ross Richard also because lending is still in.

Christian Milau: Yeah. Yeah. He’s still own one percent anyway is that right.

Matthew Gordon: See you got some guys who know what they’re doing. I opened a few doors and you’ve got the capital to be able to deliver the strategy which you’re working towards. I suspect that will that’ll change as we find new assets or not. And you look you’ll adapt accordingly but. Thanks for the update. I think that’s been really interesting to hear. There’s a lot happened the refinancing is sounds fantastic. The new ambassador involved sounds. Well I think a lot of people would be very jealous of that. We look forward to seeing the you know the assets come on and the answers start coming. Being port.

Christian Milau: Yeah. No. Appreciate you talking again and maybe do it again in six months and we’ll keep keep moving forward.

Matthew Gordon: Thanks Christian, appreciate your time today. Good luck.

Christian Milau: Thank you.

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

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Bellevue Gold (ASX: BGL) – What Makes This the ASX’s Best Performing Gold Company? (Transcript)

Interview with Steve Parson, MD, Bellevue Gold (ASX:BGL). 9 Reasons why Bellevue is the best Gold performer:

  • Bellevue Gold is very much about adding ounces.
  • Globally it’s one of the highest-grade ore bodies and discoveries that has happened in recent times.
  • Growing Gold ounces very rapidly: “18 months ago they were zero Gold ounces, and here they are at 1.5Moz”
  • Cashed up for this years drilling.
  • Have good financial backing, “so we’re not scared to go and drill those holes. And at the moment those holes, if we keep on stepping out, are continually adding more Gold ounces”.
  • It’s efficient. It’s high-grade ounces and “we’ll keep stepping out on that”.
  • West Australia is without a doubt one of the premier jurisdictions in the world to be in. “We’re in the Goldfields region of Western Australia. There are Gold mines all around us”.
  • They have been granted mining tenure. So to get it up and running, is going to be very straightforward.
  • The Gold price is looking fantastic in Australian dollar terms. Highest it’s ever been.

In the next year there will be a very good growth on the Resource space and hopefully for shareholder appreciation as well. Everything you want in a Gold Explorer. High-grade. Open. Opportunity to build a large Resource quickly.

Click here to watch the interview.

Matthew Gordon: Good morning Steve. How are you?

Steve Parsons: Yeah I’m good thanks. Yeah thanks very much.

Matthew Gordon: Good to have you. Thanks for making the time going to get to in your own words gives a two minute summary of Bellevue Gold.

Steve Parsons: Yeah. Bellevue Gold we’re fairly new company. We’ve only been around for a couple of years now. We’re an Exploration company based in Western Australia, in the Goldfields region. So very prolific Gold discovery area. Lots of Gold mines in the area. And we’re exploring the old Bellevue Gold mine and the old mine itself produced nearly a 1Moz of Gold at high rate of 15g/t. And they mined it from 1996 to 1997. A very very profitable mine. However mining stopped back then. And then it was owned by Nickel companies since then, and so we are now drilling our first holes in the last year and a half. And a very good discovery. The latest Resources is 1.5Moz of Gold and it’s soon to grow even bigger than that.

Matthew Gordon: Well there we go. Thanks a lot summary. And before we get into the questions proper. Can you give us a bit of your background or your Geo?

Steve Parsons: Yeah. So look my background is that geology expression geology I studied at Canterbury University in New Zealand and came across to Australia after then I worked for a number of mining companies and Gold companies and then you’re being involved in an expression pretty much my whole time over again.

Matthew Gordon: And have you seen anything like this before? Have you worked on anything like this?

Steve Parsons: I said pretty amazing deposit. I have worked in a couple of amazing deposits in the past though. But for the grade it’s just a real standout. And I certainly haven’t seen anything like this before.

Matthew Gordon: You’ve had a great year. Share prices has trebled. You’ve got a 1.5Moz Resource. You continue to drill. Very high-grade. It’s all good isn’t it? Pretty easy work?

Steve Parsons: If only it was easy like that. It all rolls off the tongue very easily, doesn’t it, when you say it like that? Look the thing was that the project was an outstanding project in it’s day. And that was one of the reasons why me and the Exploration team decided to jump on board on this project. And it had certainly been unloved for 20yrs and we saw the opportunity. And the fact that there was always this thought that the mineralization could continue, but no one ever knew where. And geological called into it and if you’re having success and things are going well, you obviously get the opportunity to raise a bit of funds. And grade and the rate of growth has been so rapid, we certainly had our hits and capturing that market and being able to raise funds and those funds raised. The dollars all go back into the ground and we’re discovering Gold at AUS$15 an ounce which is incredible in itself. So 5 drill rigs on site and the more rigs you have, the more chance you have of adding further ounces. So we sort of back ourselves to continue finding Gold.

Matthew Gordon: So again before we get into the strategy. Your shareholders have got to be pleased. Well first of all, the type of shareholder over the last year changed. You’ve got a lot more institutional on board. And where are they? Are they mainly Aussie or from further afield?

Steve Parsons: The shareholder base has changed a lot over the last 12 to 18 months. We’re very much a retail company. What you’d call a shell company down in Australia, with all Mum and Dad retail investors. And over the last probably 12mths  we’ve grown to be much more institutional. We’d probably be about 40% institutional now. And that institutional register is probably made up by about 50% from the Northern hemisphere, and 50% in Australia.

Matthew Gordon: Are they getting involved? I mean clearly the results have been great. So you’re probably not getting much pushback from them, but what are the conversations that you’re having with the institutional shareholders, with your monthly or quarterly calls?

Steve Parsons: Yeah. Look you know it’s not just institutions that we speak to. I mean I’m regularly be standing on stage and speaking to the retail shareholders as well. And we’v e got a number of outlets we use to get out to those retail shareholders. And of course analysts as well which we update. And look everyone seems to be very happy with the way things are going. I mean over the moon. The share price has been reflecting how well we’ve been going and discovery. And I think people are looking for us to continue on the aggressive step out drilling that we’ve been doing. It certainly looks like the ore bodies are still open North, South, West and East and at depth. So why wouldn’t we continue to step out. I think there is definitely the thought that people want us to add more rigs if we can. And we’ve certainly added rigs as we’ve gone, and had more confidence in the Resources. And so we’re up to 4 drill rigs now on site. And in fact we’ll probably be more than that I’d say very, very soon as well. And then we sort of weighing that sort of step out discovery drilling. Weighing that up versus should we be doing a little bit of infill drilling as well and increasing confidence level of the Resource. And of course that’s something we’ll be doing as well this year.

Matthew Gordon: So you said earlier you’ve not seen anything like this before in your work experience. So how much of this is down to luck? How much of it is down to planning? How much of it is down to delivery through a rigorous process? If you look at what you acquired.. the old .. it was Draig that was the former company.

Steve Parsons: That’s right.

Matthew Gordon: So Bellevue as is now. So did you know what you were getting into? How much data did you have? How much confidence did you have that there was this much Gold down there?

Steve Parsons: Yeah well, after the last company that we were running which was in West Africa. And that was taken over by a North American company, which they’re looking to produce Gold at the moment on. We very much made the team make a  decision, conscious decision, to look down in Australia and to look for a brownfields project and to look for a higher-grade brownfields project. And this was a real standout for us in the fact that, as I said before had been previously owned by Nickel company. The last company to own it was Xstrata, and they exited out of Australia. So the project became available. And for us when you want to find an ore body, I guess you can look either at grassroots, and in time the brand new area. And we’ve had success with that in the past. That that’s a good way of finding Gold, but it takes a lot longer. The other way is to look for Brownfield type project. And for us this was a real standout, because it had historically produced a lot of Gold at a very, very high-grade. That there was a lot of data there in the past. It was all known down the mines department. The previous companies had made a lot of money on it in the past. However geologically there was a fault that had come through, and everyone has said that there’s nothing on the other side of this fault. So that for us that was a real standout, because geologically we thought well that was a 20yrs old geological interpretation. And hey just because somebody says there’s something not on the other side of something, doesn’t mean it might not be there. So we we spent a fair bit of time in those first 6-8mths, before we drill the holes to understand what the mineralization was.

Matthew Gordon: What about that decision you made before you made the acquisition? What made you go for it. You can’t just go ‘Oh let’s give it a go. It’ll be fine’. You must have had some intelligence behind that? What was the thinking?

Steve Parsons: Ah No. I mean you sort of weight these things up. I guess in a sort of risk-reward basis. You can look at it as a sort of a percentage of success. What the chances of success are. And as I was saying before grassroots exploration, it normally takes a very long time. And then of course in a grassroots Exploration in certain countries and jurisdictions is a lot more difficult than others. So if you want to find something in the middle of nowhere grassroots, you’ve got realistically a 5-10% chance of something happening over a very long period of time. And for us literally all our view was that, it had produced a lot of Gold. It hadn’t been looked at for 20yrs which was just incredible in itself. It was a very, very highly profitable mine. And so the chances of finding something we viewed as you know 70-80% chance even though geologically, everyone said nothing or you never find anything geologically there again. But Brownfields exploration, we’d be prepared to back ourselves and thought there would chances of being much higher than in grassroots.

Matthew Gordon: So you’ve thought OK. It’s produced quite a high-grade before.. say 800,000oz-1Moz produced. Has sat around for 20yrs and done nothing. So we’re you a field of one looking at this. Was this geological fault putting everyone off, or was there a bidding process? I mean how hard did you have to try to get this?

Steve Parsons: So the project has actually been bought by Draig Resources. And Draig didn’t have a technical team at the time. They didn’t really know what they had. They knew that they obviously had something good. But their view of it at the time was very much, ‘Oh well its a property. It’s an asset. How are we going to move ahead on it?’. And the thinking back then was from the previous people that were running it, was well maybe some Gold in the old tailings dam, or maybe Nickel nearby. Or who knows what else. But the view was very much because this fault had come through, you’ll never find anything on the other side of the fault. And that has always been the thinking by everyone who’s ever looked at this project in the past.

Matthew Gordon: So how much did you guys pay for it?

Steve Parsons: I have to go back and have a look at what’s on the ASX platform. But I think it was about a $1M, shares bits and pieces as well.  We own the project 100% now. Sorry it’s not on the top of my head.

Matthew Gordon: So you’ve got you’ve got this project. You spend the first 6 months trying to work out what you had. And at that period, were you thinking this could be something significant. Or are you just hoping for a good project something which might stroke the interest of investors, enough to get some more funding to work this out? I mean what we thinking it was.

Steve Parsons: Well our view was very much, Expression is what we’re about. And we’re looking for world class deposits. Somewhere around the world, and this is in Australia obviously, but the view much was, let’s look on the other side of fault. Let’s get this right. Let’s look around it and see if we can find another you know 1,2,3,5Moz of high-grade Gold. That that was without a doubt in the back of our minds. However we also had the view that, worst case scenario we should be able to cobble together a few thousand ounces here, there and everywhere, and hopefully maybe turn it into a small West Australian high-grade Gold mine. Some of the lines of you know 100,ooo or 200,000 300,000 ounces of Gold. It’s a start. And then from there leverage up and look for something else. But we right from the very start backed ourselves and the fact where can we find the next big discovery, below or adjacent to the old mine.

Matthew Gordon: So it’s a well told story in the market. I think you’re well on your way to creating something significant. But what I just want to talk about something, again for new investors thinking of coming in, because there’s still a kind of reasonable retail component to this. And the question is, how do you and your team get that balance between driving the business and appeasing shareholders, in terms of shareholder value, and shareholder value creation? And you’ve obviously done that in the last year. But it’s going get more and more difficult to do that. So what’s the process internally for looking at those things?

Steve Parsons: Oh I mean it’s for us it’s very simple you know. All we’re trying to do is create value at a project level. And if we create value at the project level, then that should in theory come back to create value for shareholders and the share price appreciation. And creating value at project level is.. it’s adding further ounces and more discovery ounces. It’s an converting into a high category as well. So more valuable ounces. That’s drilling deeper, adding, seeing where those Resources continue on to. That’s the sort of thing we try and do, and we try and do it very efficiently, for less than $15 dollars an ounce.

Matthew Gordon: Okay. So the strategy is drill, drill, drill?

Steve Parsons: Yep without a doubt.

Matthew Gordon: Keep it nice and simple.

Steve Parsons: Going back to when the very first started. We literally only had a few hundred thousand dollars in the bank, and so the first drill program was very, very much, ‘where we’re going go. We’ve got a limited amount of money. Best bang for our buck’. We want to make sure that we’re hitting our highest priority targets, as quickly as possible and proving our theories right. We did that with the 1 drill rig and made it made it work. And we ramp it up 2 drill rigs in early 2018. And then we got to 4 drill rigs towards the end of 2018. And here we are now with 5. So it was certainly very happy to keep on adding drill rigs, if the deposits keeps on growing.

Matthew Gordon: So to answer my question of earlier, how much of this was luck and how much of it was planning?

Steve Parsons: You have to ask the Exploration team.

Matthew Gordon: I think they would say it was all planning. Well they should shouldn’t they?

Steve Parsons: Without a doubt I mean look there’s always been luck on this thing, but you’ve got to have a good team that comes up with the right strategy on where to drill. And there’s it’s got have backing from the board to say, ‘hey we back these guys let’s give it a go’.

Matthew Gordon: Well as long as the grades and the ounces keep coming, they’re going to continue to back you because some something’s something’s going right, obviously. So to that point, let’s assume the next 18-24 months continues the same way. You’ve got a big Resource number at the end of that. What’s your endgame here? What’s your business model? There’s got to be a point where you kind of go, ‘okay. I think we’re good now. let’s talk to people about either making acquisitions or being acquired.’ Or do you get into production? What are you thinking?

Steve Parsons: Yeah. Look I mean obviously you’re and you’re in control of your own destiny with things that you can control obviously. And for us right now, that control for us is really about the drill rigs, and the geological understanding, and adding ounces. So very much about just keep on adding ounces for the time being, and then converting those ounces into high confidence ounces. Creating value on the project level. At some point in the near future, it’ll be a point where we go right this this is going be a mine. It’s gonna be a highly profitable mine. This is what it looks like. So that’s sort of the game plan. So this is very much about just that adding ounces.

Matthew Gordon: So you’re not setting any targets for yourselves yet? It’s early days, you are less than two years into this. Things have gone quite well. And you want to continue repeating that.

Steve Parsons: One of the one of the problems, I think with a lot of junior companies like ourselves is, we try and put ourselves in boxes  too early on. And sure, great to get up and running as a mine without a doubt. Fantastic, however that is not our strategy. Our strategy at the moment is very much, the resource is still open in every direction, North South, West, East and at depth. We’re back in to keep on drilling, so we might as well keep doing that. Keep on adding ounces. And then we sort of can get to a point where we realize, well what’s the scale this going to be. And it’s just too early to do that right now.

Matthew Gordon: I accept that, it’s fair enough. So if I may…because this is for investors retail, high-net-worth, family office investors to understand. So we haven’t talked about the project, because I think a lot of information out there. But if you could maybe give us a quick summary that the five key points as to why investors should come into Bellevue Gold now. And perhaps talk about where you think the Gold market’s going as well. If you can cover all of that off for me.

Steve Parsons: Yeah look, I guess the real key thing is, we are a very simple investment proposition. We try not to over complicate things at the moment. So Bellevue Gold is very much about adding ounces. It’s adding very high-grade ounces. It’s globally one of the highest-grade ore bodies and discoveries that’s happened at the moment. We’re growing ounces very rapidly. 18 months ago we were zero ounces, and here we are at 1.5Moz. We are cashed up. We continue to have good financial backing, so we’re not scared to go and drill those holes. And at the moment those holes, if we keep on stepping out on a continually adding ounces. So that’s us in a nutshell. It’s efficient. It’s high-grade ounces and we’ll keep stepping out on that. And look for me personally, West Australia is without a doubt one of the premier jurisdictions in the world to be in. We’re in the Goldfields region of Western Australia. There are mines all around us. We’ve got granted mining tenure. So to get it up and running, it’s going to be very straightforward. And look the Gold price is looking fantastic. And especially in Aussie dollar terms, it’s looking incredible. So all those things are lining up for us and I will certainly see it for the rest of this year. And next year we think to be a very good growth on the Resource space and hopefully for shareholder appreciation that as well.

Matthew Gordon: Thank you. Thank you for that. I forgot, obviously with the the Gold in Aussie dollar terms is the highest it’s been for a while for a long time, if not ever. And you pay for everything an Aussie dollar. So for you, it’s good. So the US dollar has no bearing on your business.

Steve Parsons: Well at the moment the trend in the Aussie dollar versus US dollar has been negative. So Aussie dollar’s going down US dollar going up, which means that US dollar Gold price going up is a very good thing for us in Australia. So we’re pretty much at all time highs in the Australian dollar Gold context at the moment.

Matthew Gordon: Well, look Steve, thanks very much for that summary. It’s nice introduction to your company. We’d love a chance to catch up and maybe get into the weeds of it at a later date. So again thank you for your time. And I’ve had a long day. You ready to go home I imagine.

Steve Parsons: That’s all good. Thanks very much for your time.

Company page: http://www.bellevuegold.com.au/

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