Sierra Metals (TSX: SMT) – 121 London Mining Conference (Transcript)

CRUX visited the London 121 Mining Conference and spoke to Sierra Metal’s CEO Igor Gonzales. Hear what he had to say about his South American based Poly-Metallic mines – the Yauricocha Mine in Peru, and the Bolivar and Cusi Mines in Mexico.

Click here to watch the interview.

Matthew Gordon: Hello Igor, how are you?

Igor Gonzales: Hello Matthew, how are you today?

Matthew Gordon: Fantastic. Lovely to have you in London.

Igor Gonzales: Yes it is.

Matthew Gordon: Now, I always start off and I get people to do just a two three minute helicopter view of the business.

Igor Gonzales: Okay. Sierra Metals is a poly-metallic producer that has operations in two very well established mining jurisdictions which are Mexico and Peru. We have one… our largest mine in Peru which produces three types of concentrates. Lead, Copper and Zinc concentrates. It’s the  Yauricocha mine located at 4,700m  above sea level. Then we have two other mines in Mexico. One is the Bolivar mine in the state of Chihuahua. Bolivar is currently at around 3,600t per day in throughput and then we have the smaller mine which is the Cusi mine which is a silver mine essentially and now running around 1,200t per day.

Matthew Gordon: Okay and give us a sort of sense of the size, of the scale of the business

Igor Gonzales: Well we will generate an EBITDA this year in the order of $90M to $100M. Our revenue is in excess of $250M. And our debt is about, our total debt around $65M. And so we generate positive cash flow and we finance all of our capital requirements and with our own cash flow.

Matthew Gordon: Thank you very much for that. You’re obviously here in London. At the 121 Conference. Why are you here?

Igor Gonzales: Well we want to promote our company. we think that we are a growth story.  We’re a success story in terms of exploration results. Growing our reserves and resources, and putting those resources and reserves into operation. We’ve been growing our throughput steadily in the last three years. And so we will want to continue to do that. This year is the largest investment for us in terms of capital requirements. We will invest in the neighbourhood of $83M  just to grow our operations in both in Mexico and Peru.

Matthew Gordon: That’s self-funded?

Igor Gonzales: It self-funded, all funded from our cash flow. We think that’s a very attractive story for any investor because or where we have a solid base from which we’re growing our business which is where we’re growing our resources and reserves and then we’re growing our production plants. And therefore our unit costs will drop as a result of that. And our investors will benefit from that lower cost production.

Matthew Gordon: Okay. You’re listed on the TSX obviously

Igor Gonzales: We are listed in the TSX and then the New York Stock.

Matthew Gordon: New York Stock Exchange. Okay, so those markets at the moment seem quite illiquid. And a lot of companies are coming to London to other parts of Hong Kong other parts of the world looking for new access to new investors. What are you trying to do? Are you trying to get better liquidity because you’re unhappy with perhaps the market cap now. I mean what’s the goal for you?

Igor Gonzales: Yes we would like to have better liquidity. Our liquidity hasn’t been all that great. As we moved from Toronto to New York we improved our liquidity. However we were also looking for other areas where London could be one of them. But one of the issues we will face is that we have a major shareholder that holds 52% of the company. And he has that 52% divided into two soft fund.

Matthew Gordon: This New York fund?

Igor Gonzales: Yeah. Our fund. But one of the funds is due now. And so he will have to deal with that fund eventually and that will bring a lot of liquidity to our stock

Matthew Gordon: New shares into the market. Not new… Shares into the market. And so who are the other major shareholders at the moment?

Igor Gonzales: BlackRock and Ingalls And Snyder.

Matthew Gordon: That’s right. So are you… There’s quite a bit of your shares are taken up with major institutional money. Are you looking to drive interest from the retail market, High Net Worth family office type?

Igor Gonzales: Yes. That’s our target because we think there is a lot to gain from our story and our ability to generate cash and revenue and earnings per share.

Matthew Gordon: Again I think like a lot people you’d say you’re undervalued. And if you didn’t, you wouldn’t be doing your job. So let’s take that as read. What is the growth… What’s the growth actually going to be delivered by for these shareholders? You know your share price is what it is today. You are funding yourselves, self-funding. You’re growing, it’s a big growth story. People look at your presentation which I encourage them to do on your website. There’s a big growth story there. You’ve got three quite good assets. Where’s the upside going to come for new investors?

Igor Gonzales: I think the upside for new investors is based on our growth. our growth is quite steady and the other area where we bring a lot of value to our investors is the way we spend our capital. our capital spent it’s quite with very high ROI’s. And the reason we do that is because we do small increments in capacity to our plants. and we use local talent local engineering firms construction and labour. And therefore we’re very efficient in the use of capital because we’re in two well-known mining jurisdictions. We don’t need to go outside of Mexico or Peru to find the skill we need to grow and that makes the capital we use… it’s quite profitable in the sense that we get a great return on our investment and the for the expansion we’re doing in both Mexico and Peru.

Matthew Gordon: Okay. So in that case your AISC is what it is. How are you going to drive that down if you’re already very efficient? Is that something that you’re trying to do?

Igor Gonzales: As we increase our throughput. Ours are fixed costs which are our operating costs will start dropping round and our net cash flow will increase and that will drive the earnings per share.

Matthew Gordon: So it’s going to be coming from grades?

Igor Gonzales: Grades, higher throughput

Matthew Gordon: So if we look back at 2018, what would you have done differently?

Igor Gonzales: I think we would have done a similar story but faster if we could have.

Matthew Gordon: Yeah. Interesting. Okay. That’s your big learning from last year?

Igor Gonzales: Yes probably. So yeah. And we’ve been slowed down by permits for example. we would have probably applied to permits much earlier than we have and that’s a learning lesson from us where we could have done this faster. Had we applied for permits especially in Peru. Peru it a jurisdiction where there’s a lot of bureaucracy in the permits. And had we applied earlier and moved on those permits faster, we would be…

Matthew Gordon: You’d be there today. OK, so if I look at 2019. People always talk about catalysts and catalysts for growth. How do you balance running a company and all the risks associated with that and driving shareholder value, share price appreciation?

Igor Gonzales: I think we try to balance that by trying to meet our targets in being responsible in our spend. We try to apply the capital where we need it. We try to be very disciplined in our production and our results. and we show that quarter over quarter. and and by doing so then we will represent to any potential investor a solid story a responsible company that will look after the interests of their shareholders by respecting our budget in numbers by meeting our metal production by meeting our costs by meeting our capital requirements by respecting the all the framework that it’s required to operate in the two countries we operate. I think that’s how we show to our shareholders that we’re a responsible investor and someone you can trust and someone you can you can go there and and rely on what we’re saying. We deliver on what we say.

Matthew Gordon: Yeah I think it’s a very interesting story. It’s kind of slow steady growth as opposed to telling people they’re going to get multiple baggers.

Igor Gonzales: That’s right. And with that we have a track record that it’s very clearly proven.  We’ve been delivering on our commitments to the market in a very steady pace.

Matthew Gordon: Okay. And how are you going to manage these new investors coming in, how are you going to manage the stories to them that you’re telling?

Igor Gonzales: I think we’re going to manage them by and continue our path. Of delivering results continue our growth in a more dramatic way. If I could use that word because we were looking at larger expansions in the future. And once we’re in that position and then we can then look into M&A’s and the like. In other words a growth story altogether.

Matthew Gordon: Right well that’s what I want to come onto. But first let’s talk about the markets. You’re poly-metallic, which basically means you’re into lots of things: you’re gold silver copper lead zinc. I think that’s right. You kinda spread the risk but you’re also quite exposed to the commodity market generally at the moment because it’s pretty flat.

Igor Gonzales: Yes it is. It is but at the same time we’re exposed to precious metals and we’re exposed to base metals. And when one does better than the other then we have a natural hedge there. By proves in five different metals. unfortunately we don’t choose whether we could not be a poly-metallic producer because that’s the nature of our resources. But what we can do is we can gauge our production according to the needs of the market depending on the metal. I’ll give you a good example for that. Two of our mines the Yauricocha mine and the Bolivar mine are copper producers that we produce copper concentrate. And if, had the market, had the price of copper would go up we would have the flexibility to increase our throughput in terms of copper for example. And likewise in zinc or in lead, we have some flexibility in our production to try to meet the needs of the current metal market or the metal price for example there is a trend that zinc and silver will… might go up in the rest of the year then we can move into those directions if we need to.

Matthew Gordon: Right. But again you’ve got to be able to produce those efficiently. So how does a poly metallic company operate?

Igor Gonzales: The poly-metallic… What happens in our Yauricocha mine, the truly metallic, poly-metallic is that we have three mines in one. We have one mine that’s truly metallic has all the metal in it. The other some mine of Yauricocha has essentially copper. And then we have lead and zinc on the other one. So we can in our mine plan we can then gauge that according to our needs and put more emphasis in one versus the other. Without of course stepping out of the boundaries of our efficient cost structure.

Matthew Gordon: Right. So you’re spending a lot of time working on efficiency. And therefore margins.

Igor Gonzales: We are. For example putting a lot of emphasis in our planning team we have incorporated in our team very senior planners. Now we have a senior planning team in our corporate office that provides services to all three mines so that the mines do the short term plan and the senior team does the long range planning trying to obtain value from the different attributes that each mine has.

Matthew Gordon: You mentioned the word strategy a few minutes ago and part of that strategy is M&A or M&A potential. So you’re running three assets at the moment you’re optimising those continually, you’ve got a planning team working on that. How do you go about identifying new assets, a lot of competition and not a lot of good assets.

Igor Gonzales: Yes we usually get assets and this… We have this planning team that will go and evaluate these assets and compare to our assets. And of course estimate the potential of growth operating costs location geography infrastructure et cetera. And based on that we’ll say  yes or no to any potential possibility of M&A. We would like to stay in a jurisdiction that we know where we’re comfortable and how are we… We don’t discard other jurisdictions just because of their geography. But we are quite comfortable where we’re operating.

Matthew Gordon: Yeah well I think that’s smart. Yeah very very smart. So running a company is about managing risk every day. There’s always something that can go wrong.

Igor Gonzales: Yes.

Matthew Gordon: Okay. Are you frustrated by the market? Because that’s another layer of risk which you’re having to deal with.

Igor Gonzales: I am, we can not manage the market. We cannot manage the prices. We don’t have control of the prices but we do have control in our own cost structure our operating costs our capital efficiency our ability to deliver our production into the market so that’s what we have the control and that’s where we have to work in. We don’t have to worry so much about copper price because we don’t dictate the copper price. But we have to be as efficient as possible in our copper output per unit cost.

Matthew Gordon: And you think compared to your peers, you’re achieving that

Igor Gonzales: Yes we are. We’re competitive.

Matthew Gordon: Okay. So big question to finish with. Is mining still a relevant investment class?

Igor Gonzales: The world is going to continue to grow and there is many countries that still have not fully developed. and those countries will demand metals. For the long run.

Matthew Gordon: And you’ve got the right metals.

Igor Gonzales: And we have the right metals. We have the industrial metals and we have the precious metals. So as far as the grow the world grows we have I think in mining a reliable industry that can sustain that growth for both the industry and the humanity.

Matthew Gordon: What do you think the mining industry or even your company needs to do better to explain to new investors coming into this space with some spare cash. What do they need to do?

Igor Gonzales: Mining has been seen as an industry that is not friendly to the environment. What I can say to new investors is that mining can coexist with environment as a matter of fact we do that. There are farming areas right beside our mining operations today with the available technology. You can work hand-in-hand with the farming hand-in-hand with animal raising at hand-in-hand with other industries. Give you a prime example. All of the water that leaves our properties in Peru for example are all treated to water quality standards so the farms or the users down the road cannot complain and then we’re monitored by third parties by the authorities we get audited and everything else. So I think the technology has made mining a much more friendlier industry than it was in the past. Yes we do move earth from one place to the other but underground mines are friendlier than open pit mines for example in that sense. But nevertheless all the waste rock facilities now are monitored they have drainage they have water contention they have water and they have canals that divert water from entering into those facilities et cetera. So the technology is there. We have continuous monitoring of all of our effluent including the camp effluents and everything they all have to be treated.

Matthew Gordon: I think that’s a great point. Igor Gonzales thank you very much for coming and seeing us.

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RNC Minerals (TSX: RNX) – Investor Questions Answered (Transcript)

Owning their own mill, smart choice? Dilution? Liabilities? How much Gold? RNC Minerals (TSX: RNX) CEO Mark Selby tackles these questions and more investor questions head on.

Putting together a global project one piece at a time and making sure shareholders understand the strategy and the logic is a key focus. Hear what he has to say.

Click here to watch the interview.

Matthew Gordon: We’re here today with Mark Selby from RNC Minerals.

Mark Selby: Hi Matthew, how are you?

Matthew Gordon: Very well thank you. Now we’ve both been at the 121 Conference.

Mark Selby: Lots of activity. Yeah. No it’s good.

Matthew Gordon: Lots of investors.

Mark Selby: Lots of investors.

Matthew Gordon: Perfect. So why are you over here? Who are you seeing?

Mark Selby: Basically just to get the word out in terms of spread… we had the big discovery in September obviously, people are interested in that. But it did give people more behind Beta Hunt and more behind Dumont, because we’ve got a lot of milestones coming up on both.

Matthew Gordon: Perfect yeah. You’ve got to go and tell that story. So look we spoke online last week. Had amazing response – some very, very positive responses from a lot of people. But still some questions. You’re in London with us. Yeah I thought I might take this opportunity to ask some questions on behalf of all subscribers and some of the people all across social media, if you don’t mind. So a key driver for them, share price, share appreciation. That’s how they make money. Okay. So looking at the Haywood report, recent broker report. They’re targeting you at $0.75 cents which is great. Obviously not there at the moment. Just help us understand how you think the company’s going get there. So if I’ve look at some of the questions again sent in here, people want to understand a little bit about the Exploration phase that you’re going through with Beta Hunt. So give us an update on that.

Mark Selby: Yeah. We’re in the last phases of a 40,000m drill campaign. I think in terms of…the share price has drifted lower. We haven’t shown up with a bunch of the large shiny boulders and we haven’t been I wouldn’t say we haven’t been focused on promotional Exploration at this point time. It’s really about building out the Resource, which is something that we’ve always wanted to do with this asset. And we’re now wrapping up that phase of the Resource drilling. And now we’re turning to the Exploration phase. And again we’ve try and drive home that, ‘Yes we know we will find a lot more high grade Gold’, but this is really about a very large Gold potential here. We’ve got four sheers, and 4km of strike length that have been identified from this 700km of drilling that was done for the Nickel. And basically highlighted the first few meters over all these sheers are sitting. So that final 5,000m of drilling that will happen over the next month or so, is basically really to do the step outs, to give people a sense of how long and how deep this thing could start to look like. And really get to what we think is a multi-million ounce potential of the Resource that’s there.

Matthew Gordon: Because, it’s interesting really, because I think one comment was, ‘Oh what happens if this is a one hit wonder’.

Mark Selby: Yeah.

Matthew Gordon: It’s exceptional find, but it isn’t a business in its own right. So I can’t help but look at the team that you’ve put together. These guys have been there, done it before and very rigorous in their process.

Mark Selby: Yeah.

Matthew Gordon: So what is your strategy? You’re doing the step out program. What do you want to achieve?

Mark Selby: Yeah, we’re building the base mine. That’s going to fund the Exploration so that hopefully we won’t have to go back to the market to fund drilling in the future. So with that solid base business in place, then we can start to really sort of stretch out what the Exploration potential looks like. And what the high-grade potential looks like. I think.. there are people asking, ‘Is it a one hit wonder? Are you going to find any more high-grade Gold? And I would point.. there’s a couple slides in our investor deck. One where we basically show all of +100g/t, +300g/t intersections that are scattered throughout the mine from the Nickel drilling. Again they weren’t even drilling for Gold. And they bumped into dozens of high-grade intersections throughout the mine. In our current drilling program, I was fully expecting to actually to not hit any high-grade Gold, because again 20,000oz of the 25,000oz came from basically about two tons of rock. It was the size of a dining room table. So statistically to hit that with the drill hole with the spacing that we’re doing, is actually rather remote. So the fact that we hit a 7,600g/t drill hole which is the highest-grade … the only two mines have done better than the last few years are Fosterville and Bruce Jack, which are both pretty good comps and a pretty select group to be part of. And then we’ve had a 2,200g/t and a 1,400g/t intersection. So… and on different sheers and across the mine. So I think in terms of more high-grade, I can’t say whether it’s gonna be tomorrow or next week or month. But we will hit more as we go forward.

Matthew Gordon: But you don’t need it.

Mark Selby: No no no. We want to make sure that the base mine pays for itself.

Matthew Gordon: They are are bonus.

Mark Selby: They are a bonus.

Matthew Gordon: The fundamental business is a little much lower grade. Okay. I mean to why don’t we… I mean you’ve got some drill results coming out. You go Resource coming at the end of Q2?

Mark Selby: Yep.  So yeah we have our Resource update out into Q2, and then we’ll be putting together mine plan to Reserve through Q3. And that’ll be the basis for which we fully revamp the mine up. So we’ve taken the mine up to about 40,000 ounce run-rate. We’ll kind of stay there for the next few months as we understand exactly what we have. And then we’ll look to ramp… based on we’ll trade off capital versus run-rate, and  we’ll make a decision as to where we ramp the mine up to.

Matthew Gordon: Right. Okay. And say see you’re looking at the AISC at the moment. You’re always looking at reducing costs because you can control that. You can’t control grades, but you’ve got some pretty good indicators to date, at Beta Hunt. So what is the process you going through with AISC. What are the things you look at? It’s not just about the mill, which we will talk about in a second.

Mark Selby: Sure. Yeah. I mean the mill’s obvious one component of it. And then on the mining side, what’s encouraging for us is that we’ve got these big broad intersections anywhere from 2.5g/t to 3g/t material. So that gives us a lot of tonnage to work with. And then within that there’s a number of 5m, 8m, 10m width wide 5g/t-7g/t intersections. So that gives us some ability in terms of how we should decide on the shapes the stopes, to be able to play with that grade a little bit. So are we…is it better to do more tonnes and be closer to 3g/t. Or is it better to narrow it up a little bit and be closer to 4g/t in terms of what the grade is that’s going come out of the mine. And again it’s just a pure economic trade-off in terms of what gives us the most value.

Matthew Gordon: Yeah. Okay I understand. Well what I we talk of the mill, because it’s a big component of reducing the AISC, when we talked last week. Big question people want to ask is, ‘So how do you justify spending AUS$50M on an asset like that?’

Mark Selby: Yeah.

Matthew Gordon: What was the thinking?

Mark Selby: Sure. So for that AUS$50M, we picked up more than a 1.5Moz Resource, 400,000 Reserve. Just the near-term mine that’s already proven out, and that’s part of the mine plan, that’ll generate $10M or $15M of cash flow from us. So you take that off the purchase price, and then you’re looking at basically $35M-$40M…

Matthew Gordon: Is that a nett number? When you say $10M, $15M?

Mark Selby: That’s just from … that assumes that we find no other ounces from from the mines that we’re looking at. But there’s still a big …

Matthew Gordon: The question I was asking was.. that’s a nett amount for processing ore?

Mark Selby: Just just ore… Just ore from the Resource that we’re buying. So in terms of benefit to Beta Hunt. We’re picking up a mill for $30M-$35M, that 12yrs ago was built for $80M and would cost you, probably $100M-$120M to replace today. So when you get capital for cents on the dollar that that helps add value long-term.

Matthew Gordon: So let’s talk about the mill very quickly. Another question from subscribers and viewers is, “What condition was the mine in?’ Because I think there are two reports out there. We’re reading about. There’s a 2018 report, which suggests that it needs a lot of work. And there’s a second report which suggests that you have acquired something which has being updated.

Mark Selby: Yeah.

Matthew Gordon: So what is it?

Mark Selby: So we’ve acquired something that’s been updated. They’ve spent.. during the past year, they’ve refurbished all the upfront crushing circuit. So that’s been rehabbed. They were processing ore from the mines that they had, and one of those operations is Mount Henry. And it’s very hard ore. It’s also a lower recovery. And so again I think if there are people who went back in to some of the West Gold quarterly reports and see some of the costs there, and they’re kind of going ‘oh geez what have these guys bought’. The very nice thing that’s happening is, they’re… Mt. Henry is getting turned off. And they’re about to bring on deposit called Baloo, which they acquired from S2 Resources. It’s very soft. +90% recovery and it’s only 10km from the mill, as opposed to 85km. So it’s a structurally much lower cost ore, that’s going to be feeding in the mill, as well as ore from Beta Hunt.

Matthew Gordon: Got it. Okay. Is there anything left to do in terms of… this strikes me this is like maintaining a car. It’s got moving parts. They are going to wear out!

Mark Selby: They need to be maintain. And I basically just overhauled the car basically, and we get the keys, and get to jump in the car, after it’s just been overhauled.

Matthew Gordon: Okay. So you talked about hard rock / soft ore there. So what is this mine set up to do? Mines that we’ve looked at the past, they’re great at processing high-grade or low-grade or certain types of mineralization. So what is this set up to do?

Mark Selby: Yeah. Higginsville there is a few deposits there that were multi-gram per tonne open pits. They process very well. The two things that we need to get the 94% recovery, that we’ve gotten from the best mills that we’ve tolled at the past, is basically enough crushing and grinding capacity, to get to a certain size. We don’t need it to get a very small small. We just need … there’s some mills in the area that don’t have enough capacity. So this mill is got more than enough crushing and grinding capacity to get our Beta Hunt ore to the optimal grind size. And then the second piece is because we obviously have a lot of course Gold. You need a good gravity Gold circuit, that you know captures that Gold, rather having getting entrapped in various parts the of the mill. This also has a very good gravity Gold circuit, and allow us to maximize recovery from the high-grade from Beta Hunt.

Matthew Gordon: So remind me how much ore is it processing?

Mark Selby: It’s a 1.3Mt pa plant.

Matthew Gordon: And can you feed that? Have you’ve got enough at the moment?

Mark Selby: We know we should… I mean we’ll see where… again it depends on where we come out with Beta Hunt. But between Beta Hunt and Baloo, we should… we’re going to be very full for quite a while. And then the other part is, we’ve already been approached by different parties in the area, who have tolling material available. So and again it just becomes an economic trade-off.

Matthew Gordon: So have you inherited any contracts as part of this deal?

Mark Selby: There’s basically one set of tolls that conclude in June, and after that the capacity is 100% ours.

Matthew Gordon: And you are going to make that decision and say, ‘right we’re not going to renew that contract. We’re going to just process our own stuff’, or at least have the optionality of what you do.

Mark Selby: We’ve got the optionality. And we’ll make the decision between processing ore from from site, from Higginsville. Or do third party tolling, whatever is going to give us the highest return.

Matthew Gordon: Right, now you used an amazing phrase with me, which I’ve not heard before, and I quite liked it, which was, ‘there’s the time when you want to do the deal. And then there’s a time when you can do the deal’.

Mark Selby: Yeah.

Matthew Gordon: Which I thought was beautiful. Because there’s a lot of things that that applies to. So in this case, what was your actual timing for perhaps going out and buying a mill?

Mark Selby: Yeah, once we’d have the Beta Hunt Resource update done. And we’ve got sort of a better view in terms of how much we’re going to be mining from from the mine. You know post that would have been ideal. The reality is this was available. There was very few mills and… there’s a number of mills in the area. But as everyone sort of focuses on the US dollar Gold price. And it’s been through…

Matthew Gordon: Yeah it’s been an unusual year.

Mark Selby: Been a pretty weak year, but in Aussie dollar Gold terms, we’re close to all time highs. So in terms of Gold production…

Matthew Gordon: When you say that..explain to people what the difference is?

Mark Selby: Yeah. So the you know the Australian / US dollar. So when US dollar Gold was USD$1,800 an ounce, the Aussie dollar was ‘at par’ to the US dollar. So for an Aussie miner, the vast bulk of your costs are all in Australian dollars. So you’re seeing AUS$1,800, when US dollar Gold USD$1,800 an ounce. Today at USD$1,270 an ounce. The Aussie dollar Gold price is over AUS$1,800 an ounce.

Matthew Gordon: You are benefiting from the exchange rate.

Mark Selby: So in terms of for the Australian miners, things are as good as they’ve ever been.

Matthew Gordon: Right. Understood. Understood. So Higginsville. Your strategy was not necessary to buy it now, but it came up now. You’ve done the deal. So you recognise that perhaps the timing could have been different.

Mark Selby: I’d love to do it…I’d have done it at a higher share price, which I think is going to happen after Dumont Feasibility Studies done, after the Beta Hunt Resource is done. And after we pull up the next load a high-grade Gold.

Matthew Gordon: But you don’t always get the choice. So what would happen if you haven’t have bought it now?

Mark Selby: The risk is we had tolling capacity that was in place. Again it cost us $15 a tonne more than what we have now. As you go into a Resource update, and start to look at what the Reserve looks like, when you can take $15 a tonne out of your costs that has a dramatic impact in terms of what you can do with the Resource and the Reserves to generate a much more total free cash flow operation.

Matthew Gordon: Okay. So is anything else that you think you need to say or want to say with regard to giving people comfort that Higginsville was a smart decision? Because I imagine it wasn’t a session taken lightly. Casually. So what would you like to say?

Mark Selby: It’s a relatively new mill, it’s the right size for Beta Hunt. It gives us some some growth. We pick up a pretty big land package, in one of the most prolific Gold camps in the world. We get $10M to $15M of NAV immediately. Plus it’ll be mining there for a very long time, from the Higginsville assets. And we save $15 a tonne on Beta Hunt versus what we had in the past.

Matthew Gordon: So that was the thinking there. I guess the unknown there is the Exploration upside potential. You expect there will be some?

Mark Selby: Yes. Yeah.

Matthew Gordon: But we don’t know what number.

Mark Selby: Right. Right. And we’re not expecting any Exploration downside.

Matthew Gordon: Well there you go. You have to do that. You say what’s the worst thing that can happen, is if there’s no Exploration upside is it still a good deal?

Mark Selby: Yes it is. If we find zero ounces beyond what we’re going to take out of their current mine plan, it’s still a massive home run.

Matthew Gordon: And to do that Exploration would you… how would you finance that?

Mark Selby: Yeah. Basically we’ll make an Exploration trade-off between incremental dollars from cash flow, from Higginsville or Beta Hunt.

Matthew Gordon: So that’s a timing issue?

Mark Selby: It’s a timing issue on cashflow.

Matthew Gordon: Okay fine. Next section I what to talk about. Or rather your followers, the audience following the RNC story, is finance. People want comfort around dilution. Of course they do. It’s the overall overarching theme here. I think you mentioned to me Dumont is fully funded through to FS, at this point you’re looking at JV with Strategic, JV. partners who would finance it moving forward. It’s a big project which we can talk about a little bit, if you don’t mind at the end.

Mark Selby: Sure.

Matthew Gordon: But with regard to Beta Hunt. Is there anymore financing?

Mark Selby: No. In terms of getting the Higginsville mill deal. We’re looking at some other options which are completely non-dilutive.

Matthew Gordon: Non-dilutive?

Mark Selby: Yeah. And that’ll provide us the capital to get the Higginsville deal done and to basically get us on our way going forward.

Matthew Gordon: Okay. So good. And same for drill programs, not just Higginsville, but Beta Hunt in terms of drilling, in terms of CapEx, OpEx.

Mark Selby: Yeah. We’ll be we’ll be fine. I mean where it will come down to, as we look at the mine plan, we’ll just need to make a decision. There’ll be… the nice thing with Beta Hunt, because the main infrastructure’s in place, really comes down to sort of how much incremental capital development we want to do upfront, to get to… do we want to get to 60,000 ounces, do we want to get to 80,000 ounces, we want to get to 100,000 ounces. And again I can’t tell you what’s it going to look like.

Matthew Gordon: You’re going to sit down at that time with a spreadsheet, as we all do, and say what makes sense now? Do we spend a lot of money to get there quicker? Or do we take our time and have a longer life mine.

Mark Selby: Exactly.

Matthew Gordon: Another kind of comment which came back. A comment you made last time, I think I understand it. But there’s some people who perhaps may have misunderstood, or are unsure of what you meant. And that was with regards to an exit. Okay. You said, ‘you know if we sell a September, that’s fine as long as it’s the right deal, but if we have to build this thing out that’s fine too.’ Okay. What did you mean?

Mark Selby: I am laser focused on where the share price is ultimately going to get to. And you know in a mining company you always have to make a decision between realizing value now, or realizing value in the future. All I was throwing out was there, again there is a scenario where if we have a great Resource update, and the drilling this Exploration drilling is successful, we could very easily get a knock on the door from one of these Australia mid-tiers. One of them just took out Atlantic Gold.

Matthew Gordon: That’s right.

Mark Selby: And so they’re cashed up. They have well valued paper. They all have production, many of them have production profile Resource profile issues. And so we think Beta Hunt can become an attractive asset for a lot of those companies. On the other side, on Dumont. Again the EV story is getting lots of traction. Dumont is really one of the only Nickel Cobalt assets that can deliver Nickel and Cobalt by the early 2020’s, in meaningful volumes. So again it’s quite possible that somebody shows up in June, July, or August and says, ‘Hey we’d like we’d like this asset’. So again there’s nothing imminent. I just wanted to sort of make it clear, that we will realize value when it makes sense for shareholders.

Matthew Gordon: I think that’s the point to make. And you are a significant buyer, I remember you saying. Everyone’s aligned, which is great. I didn’t mean to ask on the Higginsville deal, When’s that due to close?

Mark Selby: June 10th.

Matthew Gordon: Right. Okay. And there’s some of these contracts which are running through to June 30th. Which you are going to let expire. Okay fine. We need to talk about shareholders. We talked about some people being vocal. People like Eric Sprott, and others, who are looking for you to talk more to the marketplace. You’ve said you will offer more guidance, and talk more, with more news flow. I guess there’s a lot coming up. We’ve talked about a lot of those things. So do those larger shareholders have any influence over the way that you operate your business? I just want clarification for some people.

Mark Selby: No no no. We do as a management team. Shareholders trust the management to do what they need to do, to run the business. I don’t get any calls on specific issues one way or the other.

Matthew Gordon: Okay. Great. If we can talk about tolling? I guess with Higginsville…

Mark Selby: We will stop. .

Matthew Gordon: Ok that’s a real simple one. You’re going to stop?

Mark Selby: We are basically wrapping that up our last hole with our current third party toller, literally as we speak.

Matthew Gordon: What’s the overlap there in terms of….?

Mark Selby: It basically it just goes.. we’re trucking to one location, and we’ve already started trucking ore over to Higginsville, on the assumption that we’re going to close. If we don’t close and we’ll do it as third party toll.

Matthew Gordon: Got it.

Mark Selby: But we’ve already started we’ve already made that shift.

Matthew Gordon: Fantastic. Okay. I hadn’t appreciate that. Okay. Well that that gets rid of a lot of questions for me. I’m just sort of generally, because again we’ve done some analysis. You know people can look at that on our website, in terms of how we grade companies. If I look at all the variables, all the moving parts, and I put a dollar sign beside each of those. Okay, for me… the infrastructure at Beta Hunt. You’ve put a number of $400M. Is that $400M to build it new?

Mark Selby: Yes.

Matthew Gordon: What’s a fire sale value or red book value?

Mark Selby: No I mean the fire sale… I mean the value that infrastructure is really predicated on the Resource below it. Right. And we bought it for… we basically bought it for $12M, three years ago.

Matthew Gordon: I’m trying to put some sense around what $400M actually means. If we try to replace it today, that’s how much we’d have to spend.

Mark Selby: Yes.

Matthew Gordon: Right. But if you were selling that equipment and someone’s coming in and moving it. Is that a reality? Is that a real number?

Mark Selby: No. But I think where it becomes a real number, is to the extent that sitting below that 5km ramp system that we define a Gold Resource. And we have the potential to define a Resource that’s sitting directly below that 5km ramp system, then it becomes a real value. Because as a miner, you’re not having to build that main infrastructure to get to that Resource.

Matthew Gordon: But how do you put a value on that? One question was sent and was, StIves may want to use the ramp system. How do you put a value on that? How does that sit… where does that sit on the spreadsheet?

Mark Selby: Oh that’s always … I was they worked at Inco and tried to merge and Falcon Bridge, and tried to merge multiple times. And then the age old debate between.. is the infrastructure to get to the Resource the value or is the Resource itself is the value so ..

Matthew Gordon: There is a dance.

Mark Selby: It’s really quite hard to put a value on it. But again it’s really about when you put the Resource in place. And you have the infrastructure, then that values… that turns that infrastructure into real value.

Matthew Gordon: Right. But the question is, we’ve done it and I’m not going to say the number. I guess you guys have done it, and you may or may not want to throw a number out there. I look at, obviously the Resource, I can put a dollar number on that. The Reserve coming up, Beta Hunt there. Dumont, clearly it’s in a very exciting space. Very exciting space. You know Cobalt Nickel, amazing. Very few good deals out there right. The potential value of that when you get a strategic investor, I can put a dollar value on that..

Mark Selby: Oh, it’s tremendous and a really good rule of thumb, if you look at, and this has held up very well over time, that a world class base metal assets, which Dumont does, is the fifth largest sulfide discovery ever, qualifies. Basically they exit it anywhere from x0.8 to x1 NAV. So you know when the updated Feasibility Study comes out. You’ll see the NAV number, we’ll have 28% of that. And so ultimately, there’s no reason in my mind why a strategic at some point in time wouldn’t want to acquire that asset for close to that value. So I guess it’s not recognized today, but is something over 12mth to 24mth period.

Matthew Gordon: Well that’s where I’m getting to. Okay. So I’m going through this process of looking at moving parts and putting dollar signs on there heavily discounted. And I look at your market cap. And I go, “What is happening right?’. Because this is one of the better companies that we’ve spoken to in a long time. Based on what I’m looking at. You’re not getting that reflected in the share price. What’s happening?

Mark Selby: I think we haven’t shown up with a lot more high-grade Gold. So there’s a bunch of investors are expecting that to pop up regularly. I think on a couple of conventional metrics, if you just look at EV per ounce, again we don’t have a large Resource that’s in place today at at Beta Hunt. And so but I think realistically again, at a $200M market cap, we’re trading for half the value of the infrastructure Beta Hunt and you get Dumont for free.

Matthew Gordon: Do you think it’s because you haven’t been talking to the market enough? I know is there something that you’re addressing, and you are going to. So you know was there something in what Eric Sprott said to the market a few weeks back. Is it because you’ve been too busy focused on business?

Mark Selby: I think you know A) we probably we haven’t been talking to the market as much. We’ve been out there, sort of off the initial wave. We were waiting for this next wave of news flow to really get active, in terms of there will be more to tell. And I think  the other part of it is the stock again, has come.. we went up x13 in two weeks. We’ve come back but we’re still up over x4, so for a lot of investors coming in. If you got in, you’ve had a great return. It’s like OK well do I want to step in at this kind of value.

Matthew Gordon: Do I see more value?

Mark Selby: Do I see more value? So I think that’s where I think once we get the Exploration drilling going, and they start to have some wow. This this can really sort of demonstrate what the scale of this asset could really look like. And then I think when we get the updated Dumont Feasibility Study to make it very real for the value is?

Matthew Gordon: What the timing on that?

Mark Selby: That’ll be up before the end of the quarter. So I think that I’ll make that a very tangible value for for investors. And so I think those things can help re-rate the stock and help really start to push it higher from here.

Matthew Gordon: Right, give me a summary here, because I’ve looked at your team. They are smart guys. Okay. Been there done it. Smart guys. You’ve got your strategy. When you came in you had one strategy. You kind of had to adjust it slightly as results come through. You are constantly evaluating. So you’re very clear about what you needed to do then. That’s share price appreciation. It worked. So what is the thinking now, about how you move forward and how you create this value, that people can look forward to?

Mark Selby: So on the Beta Hunt front, is basically establishing it as cash flowing asset. With a Reserve update there. And then start to highlight what the scale of this asset could be. That would make it very attractive to people and people need to think about it as a potential take-out target. And what that value looks like. And then on the Dumont side, again once that updated Feasibility Study is done. The permitting is all done. It’s clearly comes down to financing, and we got well down the path in 2014/15. So as that moves closer to construction and you start to see a lot more activity in the space, that value between, right now is zero. And at that x0.8 to x1 NAV.

Matthew Gordon: What’s your sense of the EV market? We’ve been speaking to a lot of battery metals companies, certainly the past few days actually. There’s a lot of excitement about that space. You have got to be careful about when you want people to come in. So the Feasibility Study is a big potential re-valuation moment for you.

Mark Selby: Yes. Very much so.

Matthew Gordon: Okay. Right. Look Mark appreciate you coming in. I know you’re busy, you are at the conference and you’re whizzing around London speaking to investors so. Thanks for making time to come and see us.

Mark Selby: Always glad to.

Matthew Gordon: I think some of these.. some of our subscribers and some of the guys on social media for us chat rooms very pleased that you’re getting out there, responding to them and answering these questions. And if we’ve any more questions, can we come to you?

Mark Selby: Anytime.

Matthew Gordon: Perfect.

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Great Bear Resources (TSX-V: GBR) – A Company Update (Transcript)

Interview with Chris Taylor, CEO of Great Bear Resources (TSX-V: GBR).

Click here to watch the interview.

Matthew Gordon: Hi Chris. How are you?

Chris Taylor: Great. How’s it going Matt? Matthew. Sorry.

Matthew Gordon: Very good. So we spoke Wow, what six weeks ago, seven weeks ago in London.

Chris Taylor: I would imagine.

Matthew Gordon: You’d been all around the world. We’ve seen you on all sorts of interviews. Telling the story which is great. But we wanted to get some update on what’s been going on, so can we just start with like a two minute helicopter view, and then we’re gonna kick off with some questions.

Chris Taylor: Yeah no problem. So since we met the last time, I believe I was in London, meeting with some groups that had wanted to meet with Great Bear. So we’ve effectively begun our drill program again. We’ve upscale that to about 60,000m, I believe we’re talking with that before. I think we had about a two week hiatus when we were waiting for snow to thaw out and everything. Now we’re back drilling again. And we have several drill holes that are completed since that time. I believe in terms of results that are public. We had some very nice intercepts that we hit by drilling deeper into our main targets. That was really nice for us to see. Because Red Lake the area that we’re working is well known for having these deep seated high grade Gold deposits. So we seem to be seeing the same characteristics which bodes really well for us over the long term.

Matthew Gordon: Because you were talking like 800m drilling before. When you say deep, you mean deeper than that?

Chris Taylor: We keep initially we step out, sort of further along strike to make the zones broader. And then we go down in the new areas and that’s what we’ve done is effectively, the areas that we already knew about, we’ve gone down deeper. We have some 30m, 100m step downs and we’ve made them longer as well. So they’re growing in both directions right.

Matthew Gordon: Okay. So I would like to get into the kind of robust strategy that you’ve employed here, because it’s different from a lot of the companies we talk to. But let’s start off nice generic one. What’s happening with the Gold market?

Chris Taylor: Oh God this is the question I dread getting all the time. I don’t have a crystal ball I hate having to prophecy over Gold prices. It’s basically… I think these days there’s a bit of a boost off of Trump’s latest tweets or policy maneuvers vis a vis China. If you ask me how that’s going to turn out over the long term, I’m a geologist I find the Gold in the ground. I don’t dictate the market pricing for the material.

Matthew Gordon: This is a typical question. Everyone is struggling with because all the norms that conventional norms as to what dictates goals. Saving because we  need safe haven and all of that, doesn’t seem to be working anywhere. The old rules don’t seem to be applying. But even with regards to what’s going on with regard to … I mean your shares the trading it’s been… since we’ve seen you it’s come off a bit, it’s come back a bit. The retail guys speculating heavily about what’s going on, what’s not going on. Of course of course some of them would claim to be great technically, and others great financially, but they’re the guys that affect the movement in the share price. Right. So how do you get the balance between focusing on what is a very strong institutional, high net worth investor base and the retail guys? How do you manage that dynamic?

Chris Taylor: That’s a it’s actually a really good question. It’s something we have to think about obviously, as the company doing this work. So our primary growth strategy is to drill off our zones in a way that the larger more sophisticated investors want to see. So effectively, if we were like many of our peers. We would hit the highest-grade material and then drill a dense pattern around it, and try to duplicate those numbers as much as possible. There’s various deposits I’m aware of, that are effectively cloning drill holes. Our strategy is to show the scope and size of what we’re dealing with, and that’s the strategy that will yield the long-term benefits. And that’s what we’re doing. So if you look at our long sections, our cross sections, our drill patterns, it’s all to show size, scope, regional significance, and ultimately, if we’re successful, we’re going to show that the Dixie project can be a world class deposit. It’s an early discovery. We’re not there yet but every drill hole that goes in shows that kind of potential. That’s really our long term strategy. And we’re quite different from many other companies out there with its strategy, frankly.

Matthew Gordon: For sure and I want to come onto that because I, when you first told me about it it made perfect sense to me, but on a certain type of investor. Okay. So I want to talk to  you, I want to get into this because you know you tell your technical story extremely well to lots of people, but I want to focus on this aspect which is institutional investors. They are presumably slightly better informed, better trained in terms their ability to interpret what you’re doing than retail, who perhaps don’t have access to information, or the necessary ability to interpret technically. So what what are your institutional shareholders ringing up and talk to you about? Because you’ve got a great relationship with them? So they know your strategy, but what are their concerns when you get on that monthly phone call?

Chris Taylor: Well there’s a series of checkboxes that we continue to check off. Right. So they all have a similar viewpoint, from that perspective. They’re looking for continuity of grade, high-grade. What ultimately deposit grade will be. And then they’re looking for size and when they see all of these things continually verified with the ongoing drilling. It’s very easy for new companies to make a discovery where they generate good intercepts. That happens frequently, not all the time, but frequently. Most of those deposits don’t go anywhere because they just lack the size and scale. I know I’ve used this number before, but it’s something like about well over 90% of all global Gold deposits are under 2Moz of Gold. What we want to be able to show these people is that we have potential for significant size and that means systematic drilling systematic growth. And it’s very different in terms of strategy than what we would do if we were feeding a market per say, a retail base with assys. Ultimately there is compatibility, there is overlap. I mean when I was in school we looked at something called a Venn diagram. A Venn diagram is two big circles that overlap each other. And the intervening space you can do a mathematical equation that show us how much they overlap. There is overlap between the retail and institutional base, but it’s not 100% right. So we focused on the big scale potential, showing companies, showing funds that we may have the big size goods.

Matthew Gordon: Right. So this I guess this comes back to… I guess we want to talk about strategy here. So you are kind of famous, certainly in terms of companies I’ve looked at, for not wanting to put out a Resource yet. Okay I get it. The institutional guys get. The retail guys. Some do, some don’t. How are you managing that dialogue. I just wonder how you talk this audience, because it’s less sophisticated. But no less passionate about your company and what you’re doing. But it seems to me you keep having to tell the story and explain and justify it. How do you do that?

Chris Taylor: With some. I mean what I would say this is my frank answer is Chris right. This is Chris who has made and lost a lot of money in the markets over the years. Who has also been involved with putting three mines into production with my former employer, Imperial Metals. So I would say to everybody that is in a rush. When you start to see us get a Resource out in the public space. We are starting to have an idea about the size of certain parts of the system. The longer it takes us to get to that point, the bigger it is. This is it. I mean we’re not in a rush, because if you’re on a big system.. we’re looking at Gold over many kilometers. So we see strike extent of many kilometers along the project. We have roughly a 20km long primary target and a number of secondary targets which are several kilometers long each of which we’ve only drilled a few of these so far. So when we come to market with a Resource eventually, it will be under the understanding that it’s characterizing a portion of the project and it’ll be in the context of what the global scope of that is. So the retail investors that are in a rush, in a way by us taking longer. It’s a very good sign. It’s like we get this also just to speak to a similar point. It comes down to getting assay results. And in our case, a lot of the time when we take a while to get assays to market, it’s because we’ve got, in our case, high-grade Gold. And what that means is, what we saw in our early news releases during discovery for instance we had one piece of rock. I remember looking at this and drill core and I’m digressing a little bit I’m sorry to take a walk here.

Matthew Gordon: I appreciate that great insight.

Chris Taylor: But what we saw was we saw a chunk of drill core that had the most Gold of any sample on the property and visually, so we looked at it. We thought this is really an exceptional sample. This was actually part of our Hinge Zone discovery. When it came back from the lab from assay. It was 1.5g/t per ton. It was one of the lowest grade samples that we’ve done. So what it turned out and we’ve now fixed this process with the labs. But there was so much Gold in the sample it just wasn’t able to go into the assay machine, because Gold is very malleable and ductile so when you try to grind up the rock you end up with a ball of Gold that doesn’t make it into the machine and you don’t get any of the Gold reporting into the assay result. We fix that. We now do gravimetric metric assays. We do metallic screens. Sometimes when it takes us longer than we expect to get assays back, it’s because we’re dealing with very high-grade numbers. And frankly this happened in our last news release. We had a sample that came back 200g/t per ton. Right, that we published. These are bonanza grade Gold results. The initial assays, when they come back from the lab, were very much lower. So we have procedures in place that catch underreported Gold, and we make sure that that doesn’t happen. But when when you have to assay something three times, that’s a delay. So it’s one of these things in terms of publishing Resource or getting assys out to market. I often get the question from the retail investors, ‘oh drill must have missed, you must not hit anything’. I can almost guarantee you with this project, it’s almost the 180 degree opposite. So that’s just the way it is. It’s big. There’s lots of Gold.

Matthew Gordon: Well yeah exactly, you talk about being in the right postcode. You’re in the right postcode as you’re going to hit a significant amount of times I’m sure of that. So I see what I’m hearing there is the message to retail, and I know our views are retail, high net worth and family offices. So we’re trying to help educate them and people like yourself and get an understanding of the process, so they feel more comfortable investing in projects like this. OK so what I’m hearing is. We can calm down a bit. No need to worry. It’s actually good news that if results are a little slower coming back. It’s probably a good thing because of the type of project which you’ve got, the process that you are doing, the strategy that have engaged.

Chris Taylor: Yeah. It can be. Typically. Yep. We’ve been drilling constantly. Right. We’re now well over 100 drill holes into this project, but it’s very early days. I would just remind everybody that in August of last year, the company was sitting at about a $10M market cap or somewhere in that range. And it was because we’re very early in the drilling process. We’ve now been drilling constantly over that intervening 9mth period. Well over 100 holes on the project so far. We’re increasing the number of drill rigs. It should help get assays to market every two weeks to every four weeks. It’ll be sometime in that in that framework. But you know, as we drill more zones. As we drill deeper holes, deeper holes take longer to drill and they take longer to ASIC. So bringing an extra drill rigs, like we’ve announced. We’re tripling the number of drill rigs from last year up to three. So that will definitely help. I would just encourage people that real discoveries if there’s just only so fast we can drill it. This is a real discovery. We’re drilling it as fast as aggressively as possible and it keeps expanding so if if you’re interested in our progress Preet please follow it that way. The value comes in on these things. Once the boxes are checked off with the large companies and with the large funds. Right. And that’s the process that we’re going through right now.

Matthew Gordon: Yes. So I think that’s a great point to make actually Chris, because there are companies which are pumping the share price, in the different ways that they can pump the share price, and it’s kind of… it can be short-termism. You are building this thing out to be attractive, to be either taken out or get into production. You give me that answer right now. You’re definitely going into production. Bill it that way. You don’t want that discount if you tell people you’re going to be selling. I like the rigour that you put into the process and the decision not to get distracted with Resource numbers, or worrying about the price on the day to day basis. It does though mean that you attract different sorts of investors, as I say a longer hold investor. Because you’re saying to people, we’re building for the future. Would you agree with us? Would you say that’s the kind of audience that you might attract. Shareholder you might attract.

Chris Taylor: Yeah I would say that is very much a focus. And I know we’ve talked about this before but great bear it’s like a decade old project for me. I got involved in 2010. We’re long term, we are long term shareholders. We are the ultimate long term shareholders. We like to see like-minded participation because value comes in some cases with patience. And if you had sold out of Great Bear last year, we went from I believe it was about $0.10 at the beginning of the year to $0.60 mid-year. If you had just settled on the triple that you would have got at that point, you would have missed out on a subsequent run. Likewise right now, if we continue to be successful and you lose track of the progress and the growth in the company right now, you would not be exposed to any of the potential upside for all the next stages of the project. You know once we’re further than nine months into the discovery. So how many more discoveries are there to be made on the project. This is something we don’t know yet, but we keep finding more Gold. We keep expanding the system. I think it’s very early days in this story. And we want to keep the share structure tight. And this speaks to your point of long-term shareholders. There’s only 38 million shares out in the company. The lower that number is the better the multiple on each share basis for everybody going forward.

Matthew Gordon: Well let’s quickly segue on that. OK. So I think it’s 50M, fully diluted Is that right 38M before adding…

Chris Taylor: 48M fully diluted.

Matthew Gordon: Yeah. Sorry. But you’ve got to you’ve got a whole bunch of warrants coming through.

Chris Taylor: Yeah. That’s largely dried up. The only remaining warrants that I know of. Our Rob McEwan, our biggest shareholder, and management effectively. Everything else has already been exercise that I had a warrant exercised come in the other day for 200 shares. Never seen that in my life. I believe we have largely gone through the warrant overhang.

Matthew Gordon: It all counts. It all counts.

Chris Taylor: We have the buys some pencils.

Matthew Gordon: Yeah. Okay. So. So I just wanted to quickly deal with that and get out of the way. Okay then it’s coming coming back to that. So if you’re saying you’ve got some long term institutional guys and  obviously Rob. Other high net worth and you’re attracting the longer-haul retail type of guys, because the story you’re telling is, you know we’re still creating value here. There’s more money to be had down the line probably possibly. You couldn’t possibly say that, but I could. Companies do experience movement in share because of liquidity and trading and volumes on a daily basis. So retail, short-term retail trading, not necessarily day trading is still important to an organization. You’re $100M at the moment right. You know as you kind of move up through the value curve those guys will still be important to you. So how in the context of what we talk about how are you going to manage that messaging to them? You know you got to say ‘we got some great catalysts’, the phrase everyone likes to use, coming up this year. We’re building this thing out for the future. But if you want to come in now, get some some value created, and then opt out, sell out then that fine by us. We don’t mind. You’ve got to have that… this is what I mean this kind of message needs to get out there. Are you talking to people. What are you saying to the market, apart from the long-term message, what are you saying to other retail investors?

Chris Taylor: Well there is a retail… there is a component of the retail base… which does trade in and out of the stock. So we probably have our estimate is about half of our shareholder base is in retail hands. And then as recently is a good example, the past few weeks we went down, and then we went back slingshotting back up. A lot of this is based on short-term market fluctuations. The movement in Gold prices… there was a big takeover that was announced a few days ago, Atlantic Gold for $800M. So another Canadian project, that’s being purchased by Australian company. So you get M&A activity that tends to be conducive to more liquid trading. It’s basically a combination of factors of macro-market factors. Gold price movements and our own drill results. So our drill results, they’ve continuously been steady. So I think there’s an element of fear which has been removed from the shareholder base. People are typically used to seeing like ‘well they had good results this time but next time I’m really hesitant. So there they have their finger on the sell trigger’. I think we’ve got past that to a large extent, because all of our news releases over the last several months have been very positive. All of that growth all about expansion. And so there’s ultimately no I can’t dictate if somebody decides that they want to sell their Great Bear and they think that they’re going to make x10 their money tomorrow by investing in a cannabis story or something else like that, they’re going to do it. Typically though what we see is, I talk to shareholders retail shareholders daily, it’s a daily daily enterprise. So I’ll see that they sell a bit of their position. So they keep a core position, and trade in and out of the rest of it. That’s typical. And some retail shareholders that I know, these are smart people. I mean your comment early on about the institutional investment being more sophisticated. I have a retail level shareholders that worked in the industry, that have accumulated between 1 million and 2 million shares of Great Bear over the last year. So these are technically retail people, but they are highly sophisticated. And I think on on a rough basis, I know we’re about 7 or 8 million shares of the company sit in the hands of a few retail type people, that have accumulated large positions. And it’s again it’s so it’s a bit of a loaded question you’re asking me. So the story is with these people you can trade off of Gold. There always is some liquidity in the stock you can trade in and out of a position or you can trade based on our fundamentals or a combination of both. That’s entirely up to you as a shareholder. I just encourage anybody that is a shareholder to just watch what we’re doing, and let the guys in the field, the experts do their thing. They’ve been very successful with it so far. If we think for whatever reason, we’ve been lucky enough to hit the only Gold on the project by randomly going in and testing these new areas, We probably tested. My guess is about 5% of the area of the property so far. I mean I’d be astonished if we had been smart enough to target the best zones, or the only zones so early on in the exploration process. So as a geologist, a structural geologist, somebody with a mining background, I think there’s a long way to go. That’s the story that you can tell people that are interested in, just the possibility that at any given time there might be another transformative event in the company. It could happen. These areas these districts are known for it. Otherwise the long term steady growth. The other component of our project which is expanding the areas that we already know about, that generates and fuels that steady growth. The exploration component where we continually test new areas that’s that possibility to have that additional blue sky. And both messages are appealing to the retail investor base or even the more sophisticated institutional.

Matthew Gordon: Okay. I’ll buy that. So just to finish off on a slightly about the asset. I didn’t I didn’t necessary want to asset today.

Chris Taylor: Yeah.

Matthew Gordon: But it is in the context of your strategy. So we’ve interviewed a couple of Canadian global players with large Resource number, of 5Moz – 7Moz. You can work out who that might be. Youk know they are sitting on a bit of cash. They’ve got some optionality in terms of how they play this out the cycle. They continue to drill. You know at some point your investors are going to want you to kind of put a red flag in the sand, and say ‘right now’s the time we’re going to come up with a number’. The time we’re going to say to the market here’s what I think we’ve got’, because remember… the drilling is like I get it. It’s a great strategy. I think it’s a great strategy. But at some point you’re gonna have to pull the ripcord. What’s your sense of timing on it. You’ve been on it 9yrs. You think there’s a long term project. How far would you go with the current strategy?

Chris Taylor: I guess with Dixie we acquired this project 3.5yrs ago. We started drilling it 2yrs ago and we began drilling constantly. About a year ago. Right. So we’re 1yr into that process. So I’ve been with it for a long time in terms of the company, but this project is fairly new to us. And it is a new kind of discovery. Comparing us to companies that have large Resource numbers, that are already public. I mean you have to compare apples to apples. They have an incentive, if they have…. Canada is a huge country. You’re talking to our peers. Some of these projects are very remote right. Some of them are very expensive to drill. We’re looking at a situation with what we have, where you have… with the merger of Goldcorp and Newmont in our area right. They just made the combination this just finalized like weeks ago. So this is a very new event. Those management teams are figuring out what they’re doing with Canadian assets right now. All of the Canadian assets. Goldcorp are being evaluated by Newmont for either advancement or disposition. And what we’re looking at here in my opinion… Remember this is just my opinion. But we’re looking at a very-high grade discovery, just off the side of the highway, right by the power line, about a 20 minute drive from the main Red Lake Gold mine. I think that if we drill very aggressively, and we keep expanding that level of aggressive drilling at Dixie, and show the size potential, we want to make ourselves as big and appealing as possible in the next several months. This is not years. This is not a multi-year process. We want to show that when decisions are being made in this district, somebody will end up owning or consolidating all of Red Lake. It’s such a big high-grade historical mining camp. We want to make sure that we’re a bit of a magnet that other decisions go on themselves around. And that’s really another component of Great Bear strategy, is to make sure that in the timeframe of months, not years. It’s obvious that we are an instrumental or critical component of anybody’s decision making process. So I think that gives you a little bit more colour on our thinking.

Matthew Gordon: I guess look like I’ve enjoyed this conversation and I was keen to get to talk to you again. It’s one of our favourite stories out there. People who go on, you actually number one ranking system. So it says a lot.

Chris Taylor: Thank you.

Matthew Gordon: You’ve done the hard work. So you know I do encourage people to come and look at this story. We always like hearing what you’re getting up to. I don’t think the strategy just stands for front from the crowd. And I think is the right thing to do. So. Thanks again for your time Chris. Appreciate that and hopefully we’ll see you next time you come through London.

Chris Taylor: Matthew thanks very much. Thanks for having this conversation with me again today. We’ll have more news out in the near future. If you are interested, I’d be very interested in following up with you afterwards, after the next news releases, So please just contact me at your convenience.

Matthew Gordon: Perfect. Chris lovely to talk to you. Enjoy the rest of the day.

Chris Taylor: Thanks very much.

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RNC Minerals (TSX: RNX) – 5x Return for Shareholders Since September. Can They Keep it Going? (Transcript)

We interviewed Mark Selby, CEO of RNC Minerals (TSX: RNC).

Q1/19 Highlights:

  • Quarterly Gold Production: Gold mined production for the first quarter totalled 3,716oz compared to 13,780oz in the first quarter of 2018. Production was lower due to the planned temporary ramp down of bulk mining during the first phase of the ongoing 40,000 meter drilling program. The Gold mined grade in the first quarter was 3.36 g/t, 32% higher than in the first quarter of 2018.
  • Restart of Gold and Nickel production: Limited restart of bulk Gold mining is well underway at Beta Hunt. By the end of April 2019, the restart had already achieved a 40,000oz annualized run rate. Nickel production has also resumed and will contribute cash flow going forward.
  • Father’s Day Vein: Development is now sufficiently advanced to allow mining activities to begin underneath the Father’s Day Vein Discovery on 16 Level. This development will target a 1,406 g/t intersection sitting just 7 metres below the Father’s Day Vein area.
  • Exceptional exploration results: Results from the 40,000 metre drill program that was initiated in the fourth quarter of 2018 have been positive. RNC is on track to complete a resource update by the end of the second quarter of 2019 and will shift its drilling focus from resource definition to a broader exploration campaign to test the substantial exploration potential of each of the four shears on the property.

Click here to watch the interview.

Matthew Gordon: Hello Mark, how are you?

Mark Selby: Hey Matthew, how are you?

Matthew Gordon: It’s lovely to have you on. I know you’ve got a very passionate fan base out there, who are dying to hear from you. They’ve been sending us lots of questions, so I’m keen to see how you respond to some of those thoughts. But why don’t we kick off first with a two-minute elevator view of the company for those who aren’t familiar with the RNC story.

Mark Selby: Yeah no I think you know RNC fundamentally is a tremendous investment opportunity at present time. Most junior companies are lucky to have one great asset, and we’re fortunate to have two great assets. So there’s the Beta Hunt, Gold and Nickel mine in Western Australia. Obviously investors who have been following this story work, are very aware of the Father’s Day Vein Discovery last fall, where we pulled out +25,000 ounces out of the size of the living room, that generated that Gold at a 40% Gold at 400,000g/t of content. So again, we think one of the most exciting Gold discoveries that’s been made in a very long time. The great thing there is there’s a massive amount of exploration potential. That’s why we acquired the asset in the first place. We’re now able to start to drill that potential off and we’ve been coming to the end of a 40,000m campaign. But from an investment perspective, fundamentally you’ve got this massive exploration potential. We’ve got four sheers, spread across 4km, that has been barely tested to date. We have this potential for this high-grade repeat of a Father’s Day Vein, where you know 150m down into each of these sheers, where it intersects the sediment layer, we’ve the potential for more of these high-grade discoveries to be to be made. And then the best part about it all, is that there are very few multi-million ounce deposits that have been discovered in low risk jurisdictions. And not only are we the basically the backyard of Australia’s main Gold region, we have all the mine infrastructure already in place, that we acquired which cost you $400M to replace today. So you know that’s Beta Hunt. And then on the DuMont side, we’re wrapping up the updated feasibility study, on what is the largest Nickel Cobalt project, development project in the world. It’s one of the largest sulphide discoveries ever. We’re sitting up and Quebec and the Abitibi, next to a pile of infrastructure. And so in a market that I think the market now is beginning to realise how much Nickel the world is going to need by 2025, 2030. Glencore just put out a report out yesterday, saying we need 1.3Mt by 2030. And so you know Dumont is one of the few projects that’s ready to meet that need. So you know we’re very excited about what we can do with that asset. So you’ve got Beta Hunt. You’ve got Dumont. And fundamentally our team is going to work to whatever way maximizes the value for shareholders for each of those assets.

Matthew Gordon: Thanks for that summary. A week we did a bit of work before this call to learn a little bit more about the company. And it struck us that you, from the get go, have designed this not like a junior but something bigger. There’s been a bit more rigour to the planning, I’m saying this as an outsider. There’s been a bit of rigor to the planning, and of course, you can’t get away from the obvious statement if I look back to your share price back in the beginning of September to now it’s five times. So if I was in getting of September, I’d have five times the value of my shares. That’s a pretty impressive type of return. I think a lot of companies be very, very happy with that. But you tell us a little about the strategy. I mean how have you mapped this out? How have you planned it from when you started to today and perhaps a little bit about where it’s going?

Mark Selby: Yeah I mean the board and management team here have come from majors. All of us are generally worked at Inco or Falcon Bridge at one point in time. I worked at Quadro for several years as well so yeah, in terms of our approach, we are looking to try and build out a multi-asset mining company. That was designed from day one when we went public and in 2010. Our first asset was obviously Dumont, which we’ve taken through to fully permanent Feasibility Study complete, ready to go mine. But we realised a few years ago is that while the EV story is exciting, you know at that time was still four or five years away. So in the meantime, we look pretty aggressively at a range of assets. So we’ve picked up two assets at the bottom of the market in early 2016. The Reed Copper Mine (Canada) which we owned 30% of and then and then Beta Hunt (Australia) and so we were fortunate to take those two smaller assets. Reed we generated a 120% return on capital over three years, which was a fantastic investment. Beta Hunt, to be honest we struggled out of the gate with that, but then obviously with the big discovery last year, it validated our investment in that asset,which again created several hundred million dollars of market cap just off that one particular investment.

Matthew Gordon: Yes I guess there’s a little bit of fortune to that, but there’s it strikes me also certainly a lot of planning involved to be fortunate enough to make that find. What are you gonna be doing over the next 12 -8 months going to repeat that success, repeat that kind of value creation. Is that that is their plan? And what is it?

Mark Selby: Yes. So you know we just announced that we exercise the option on Higginsville property. Again we had a mine that needed a mill, they at a mill that needed mine, so for us that was a perfect transaction and with a real synergy. That’s a word gets misused quite a bit, but in this case there is some real synergy between that set of asset. And that’ll really allow us to take Beta Hunt to a strong cash flowing position and provide the foundation for it to become the very large Gold mine that we think it has the potential to become. And then on the Dumont front, we are the operator with that with our partner Waterton. And so the key there is that asset right now is fully funded from the cash that exist within the joint venture already. So there’s no call on the company’s cash today. And we’ll look to partner a JV in a way that makes sense for our existing shareholders, if we get a bid for that entire asset that makes sense, we’ll sell the asset. At the end of the day I have most of my net worth in this company, so I am going to do, my focus is on doing what’s best for our shareholders.

Matthew Gordon: We did happen to look at the buying and you have been a big buyer over the past few months, and of some of the other management team. So I think that’s indicative of you your view of whether this thing will work or not. And just just on that, I mean how do you think you’re doing in relation to your peers for instance. I do want to want to come into the Higginsville in second, but talk to me about how you think you’ve done in 2018 & 2019.

Mark Selby: Yeah I mean obviously the price has come off in the first half of 2019, but if you look through 2018, 2019 as you indicated we’re up x4. x5 over that timeframe. If you go back to early 2016, when we made that shift, to pick up those additional assets, we’re up to x2 to x3, from that timeframe. At a time when the value of most junior companies just continued to erode away, post post that date. So you know again, I’d like to think in terms of that overall time-frame, in terms of the value that we’ve created to date. And again with Beta Hunt, we’re really just getting going. The Resource drilling is where it is. We’re going to start the exploration drilling now, and again we want to really show people just how big this Gold mine can be. And as I said you know we’re in the enviable position of having one of the few Nickel Cobalt projects that’s ready to go, in a market that’s desperate for Nickel.

Matthew Gordon: Well yeah actually we talked to Anthony Milewski last week the CEO of Cobalt27, that you’ve recently done..not necessarily recently, done a deal with them. He was very positive about the Dumont project and being involved with it. How did that deal come about?

Mark Selby: So they yeah they picked up an existing royalty back in 2015. Again we’ve tried to be as creative as possible, in terms of some of the financing that we’ve done, given the equity markets have largely been closed for most of the last 8yrs, for development projects. And so they picked up an existing royalty from Orion Mine & Finance and they purchased that back a year ago February. And I think in terms of the endorsement for Dumont, is pretty profound in the sense that that Dumont royalty acquisition was their very first non-physical metal transaction. So this is a group that has probably spent more time than just about anybody on the planet looking at Nickel Cobalt assets, and the first assets to make an investment in is in Dumont. And then secondly,they continue to I think actively promote it as a mine that they see as one of the few projects that gets built this cycle.

Matthew Gordon: Yeah for sure, it is very, very positive but we’re gonna be talking to him about it again quite soon. So obviously all the PR, all the headlines, have been about Beta Hunt, for obvious reasons. The Father Day Vein, extraordinary find there. A lot of hard work to get to that point I guess. It takes a little bit of the limelight away from Dumont. Because you said a minute ago you said you knew three years back that EV was coming but it was it was going to take a while to get those and you started looking at other assets. Tell us about the Nickel market what you saw then, and what you see now. Why Dumont should be something people pay attention to?

Mark Selby: Yeah. No I mean I again going back to day one with this company. You know the reason the group of us came together in 2010 was…We had we went through a great big Nickel boom in 2007. Where Nickel prices got to $25lbs, +$50,000t. And what happened at that time was. Nickel had had this overhang of a bunch of large laterite projects that literally sat around for decades. And with that spike in prices, basically all of those projects that I’ve been sitting around for decades finally got financed and put into production. Now a lot of those plants took a long time to ramp up. But basically the emptied out the project cupboard. So you know our view was with Dumont in 2010, was we knew we had to get through 5-6yrs of Nickel pig iron pain as the market absorbed all that supply that was going to come from from Indonesia and the Philippines. But once we got through that additional supply, fundamentally Nickel demand is still very robust from just stainless steel demand at 5% a year. And then on the other side equation you now have this brand new use with EV’s. Robert Freeland, I think said it best, Nickel’s the new gasoline. I think we’re moving from the oil based transportation system, to a Nickel Cobalt based transportation system. So that’s going to require vast amounts of Nickel. So having a Nickel project ready in a development pipeline that’s basically largely empty. We think was going to create a lot of value over the long term. It was not.. in 2010 this was not about a quick home-run. It was really building a foundation, building a world class asset which takes more than a few months to do. And so we think we’ve got that with Dumont… We always had that Dumont and now we’re increasingly…we think Beta Hunt has that potential on the Gold side as well.

Matthew Gordon: So you could call it the world’s second largest Nickel reserve. Yeah I think fifth largest Nickel Sulphide reserve, and the ninth largest Cobalt reserve. This is, on any level, that’s pretty impressive. You got I guess options there, but can you give us some sense of what the Nickel market’s doing. You mentioned, I think Indonesia certainly is one of the with Nickel pig iron etc.. Tell us a little bit about the market, again for those sort of uninitiated in this space.

Mark Selby: Yeah I know and there’s lots of investors and for good reason haven’t paid much attention to Nickel because fundamentally it was a pretty structurally beat up metal. So through the first half of this decade, you had the supply come from Indonesia and China where they took this laterite ore and dumped in furnaces and provided a significant amount of new supply. You had a massive amount of inventories pile up, and that really weighed on the Nickel price for quite a period of time. But today, we’ve now we worked through that first wave. Nickel demand continues to be robust. You know the thing about 5% growth, which in Nickel is about twice what it is and Copper and Zinc. That means you need to double supply every 14yrs. So we need by the middle of 2020’s, we need to find all of the Nickel supply that existed in 2010. And not only build it, ramp it up, and get it into production by 2025, and we’re a fraction of the way there. There’s lots of Nickel plants being built in Indonesia. We need every single one of them. The biggest risk to the market is that I think we’re going to struggle to find enough supply to meet demand. And if you look back a Nickel, again I think for people who are new to Nickel, if you look back a Nickel over time. It goes through these massive squeezes every few decades. So in the late 60s Nickel prices got to $8lbs in 1968, which would be about $50lbs today. We had another big Nickel spike in the late 1980s. We had another Nickel spike in the mid 2000s, where we got to $20lbs. And if you look at the kind of projections that the Glencores of the world are putting out in terms of demand growth over the coming decade, it feels like we’re setting up for another one of those squeezes in the first half of the twenty twenties.

Matthew Gordon: So how do you as a company, because if I look at other commodities sources such as Gold, the value for investors is usually late exploration, development stage. That’s when people get taken out. Once you move into production, there’s less returns for the shareholders and in terms of share appreciation. How do you value this space? Obviously you’ve got Gold. You’ve got Nickel. There’s this curve building of value creation. You could existing shareholders. You’ve got potential new shareholders. And you are constantly evaluating where the company is today and where the maximum point of return is. How do you go about that?

Mark Selby: Yeah. No I think you know again you pointed out that we’ve had this massive run since the Fall. You know up x4, x5 since that timeframe. And people think oh well I missed the boat. But today you know at a $220M market cap you know again at Beta Hunt, the infrastructure that we acquired that would cost you $400M to replace today. So you know if we find any Resource the investors getting it for zero. And again given the scale of the sheers, and the highlighted potential already from the historic drilling that’s there. You know this could be a very large multi-million ounce deposit potentially at some point in time. And so if you look at what those kind of Resources and hopefully Reserves in the not too distant future, trade at, exit at, multiple wise. Now again that can be a very, very valuable asset on its own. And then on the Dumont side. Again we haven’t been in a development cycle for a long time, so I think people have forgotten about what metrics around development assets, basically exit for. And again there’s been a few recent examples so. Arizona Mining with their Zinc projects the Southwest United States. You look at the takeover of Nevsun, those  basically both went out for close to x1 NAV. But if you look historically, high quality base metal assets of the scale that Dumont and these assets are, exit at x0.8 NAV to x1 NAV. And if you look at what the old Feasibility Study said we have +$1Bn NAV. The new Feasibility Study is going to probably come in… the CapEx is going to be lower, and the NAV is going to be lower but it’s going to be in the same same order of magnitude. And so again we think there’s tremendous value upside, on both those assets, from where we’re sitting today.

Matthew Gordon: Okay. Well that’ll be interesting to kind of get your guidance on us as you moves through that process, with both both assets. As you say the both world class assets. I imagine you’re quite a few people’s radar. It’s a question of I guess when you want to have conversations and what these conversations mean in terms of value. Can I come back to play to Beta Hunt momentarily if I may. And then we can talk about Higginsville. So Beta Hunt, you got the Father’s Day Vein,  you extracted several very large, high-grade rocks which you have been on tour with. I’ve seen them live myself here in London. Very, very impressive. I guess you’ve extracted the… or have you… extracted the maximum PR value from these now. Are those things which are now going to be monetised?

Mark Selby: Yeah. No we’re actively in the process of monetizing those specimens. Just like you said you know we did take them around the world because again to be able to generate that amount of PR and exposure is again companies don’t get that kind of opportunity every day. And so you know when you’re in the feature Corshack Exhibit at the BMO Mining Conference, which is the first time that we’ve been invited. And you’ve got people who’ve run… I won’t name specific names of guys who ran some of the largest mining companies in the world, crouching behind one of your giant rocks, taking a selfie with it… to be able to have… and have 15 minutes of discussion time with them. That’s been invaluable. And again that’s been repeated time and time again with a number of the larger Mid-tier Gold producers. A number of the largest mining companies in the world. So you know it’s tremendous exposure for that.

Matthew Gordon: It’s very interesting to see. I think people become quite childish when they see those rocks. They behave in a very different way. So let’s talk about Beta Hunt. So Goldfields and St Ives? Are you in any discussions with them?

Mark Selby: No, I mean when the prior owners of the asset had some option potential for some of the adjacent ground, underground. Again at the right time, we’ll re-engage with Goldfields to see if there’s any interest there. Fundamentally we have this this ramp that goes down into the heart of that system, and so there are areas adjacent to the property that would make sense to access from that ramp. So you know at the right time, we’ll resurrect those conversations with Goldfields and hopefully come to a deal that makes sense for both groups.

Matthew Gordon: And with Higginsville with the St Ives operation as well is that on the table? Is the part of the thinking?

Mark Selby: In terms of with Higginsville just have a …again from having mine / mill combined is a much more attractive acquisition target. And the reality is, unlike the North American market, unfortunately where the mid-tier Gold guys have struggled for quite a while, the Aussie market, you’ve got a bunch of mid-tiers that are fully cashed up. Have paper that’s  very well valued. So again I think once we get through these next three rounds of drilling here, and really start to prove up the scale a Resource that we think we have. We’re gonna get more than a few knocks on the door from these mid-tiers. Who bought a bunch of old Gold mines that are facing production profile issues, whereas we bought an old Nickel mine that happened to have a brand new Gold deposit.

Matthew Gordon: Yeah see. Let’s get on to Higginsville because I think I understand you’re thinking process. Why you structured it the way that you have. Why don’t you give us the run through and I’ll perhaps pick up on some of the questions.

Mark Selby: Yes. So we’re picking up Higinsville for AUS$50M, half in cash, and half in shares, that West Gold will have to hold on to for a period of time. When we announced that we had the option, we did.. the equity… what we believe will be the equity component that we need to satisfy that $25M payment. And you know we’ve gotten very attractive terms on a bunch of very non-dilutive type financings, that we expect to have in place by the time we’re ready to close the deal in early June. Again fundamentally, when we bought Beta Hunt the plan was to start drilling i,t get a long term milling solution in place, and at the right time as well we’ll be talking to the royalty company about working, re-working the royalty so that we get to a number that makes sense, hopefully for both of us. And so when the Higginsville opportunity came around, there’s only so many mills that are already in place, that close by. And so again to build that sized mill new, today would probably cost you close to $100M  so a $50M price tag was much better than then buying it new. And then in addition to the mill, we get a significant land package on one of the most prolific Gold camps. And so any of the Resource value and the operations which will be coming online later this year. That’s nice, easy to process, good grade for for an open pit oxide ore and so that blended with the material Beta Hunt makes a lot of sense. We save $15 a tonne versus what we’re paying at beta right now. So it doesn’t take too many years of just the milling synergies alone, to pay for the acquisition.

Matthew Gordon: Tell me about numbers there. So it’s $50M. You’ve obviously done the math. Worked out that that’s good value. You saving $15 which is which is great, but can you tell us a bit more around the thinking of the way that you structured it, in terms of the cash flow and the shares. With the share price, it is now a little bit lower than it was just after Christmas. Do you look at the case of, ‘money is the cheapest when you can get it’. I mean do the deal now. Could you have waited?

Mark Selby: No but I think if we had waited to do… we did the equity component when we announced it. Because again we wanted to take away from any sort of equity overhang that’s there. I think when we announced that, and again hopefully we’re in a place where it is completely non dilutive financing, that I think that will really help the story going forward. You know in terms of doing the deal when we did it. You know obviously, there’s always the best time to do it and then there’s the time when the assets are available. So you know that was… the asset was available. It was the right…it was the right time to do it. And we chose a structure that we think made the most sense for both investors. And we’re glad to have West Gold as a large RNC shareholder here going forward who quite likes the Beta Hunt mine.

Matthew Gordon: So how quickly does something like that pay for itself. $50M is a of money.

Mark Selby: Yeah if you just look at the milling synergies alone. If you just assume Beta Hunt is going to produce 2,000 a day, just the milling cost savings v tolling, you’re looking at $10M a year. So if we do nothing else other than get milling cost synergies that it’s paid for itself in just over five years. If you…and again at a higher mill rate that that cycle comes in much much shorter. But then on top of it, again we have all of that Resource that’s there, we will have ounces coming from that land package and then being positioned in that part of the camp, opens up a bunch of other future opportunities going forward.

Matthew Gordon: Interesting. So tell me with the land package with Higginsville, obviously that.. to define what you’ve got. I imagine you’ve got some information from them, but you’ll want to explore yourself and understand and what you’ve got there. Is that something you’ll do yourselves, or do you feel that you may find a partner to help you develop that. I mean how are you looking at that?

Mark Selby: Yeah I mean the primary focus for exploration is going to remain Beta Hunt. That’s job one and job two. And we obviously need to Resource…basically just develop and expand the existing Reserve Resource that’s there. So sort of just some small step out there to continue to sustain production from those those areas. But again across that larger land package, if we don’t have the time and dollars relative Beta Hunt to do that exploration, yeah we’d look to JV that out to the right kind of partner to help unlock that value that’s there.

Matthew Gordon: It’s interesting. And again, if we continue along this strategy of building infrastructure and I guess what the ultimate aim of reducing your AISC. That’s that’s got to be the bottom line?

Mark Selby: Big time. Yeah. Again the lower your processing cost, the more Resource potential opens up for you.

Matthew Gordon: For sure. So what are the others sort of infrastructure type acquisitions or builds or other types of acquisitions, that you’ve been considering? Not necessarily specifics but what have you been looking at?

Mark Selby: Yeah. No I again I think with Beta Hunt, it makes sense, given that the geology and the location, to look for things that are nearby that asset. And there are the things that we’ve looked at in the past that are nearby. I think right now, it’ll take.. we’ll focus on consolidating those two assets and extracting all the value we want to get from there. But again if an opportunity to infill a nearby opportunity that can provide feed at low cost into that mill, know those kind of things that we’ll continue to look for in that part of the world. And then on Dumont the focus is really gonna be on finding a funding partner to take it into construction as quickly as possible.

Matthew Gordon: Sorry I will get on to Dumont, I just want to very quickly finish off on Beta Hunt because there’s a lot been going on and you’ve done everything in such an accelerated time frame. It’s been quite impressive. Only the AISC. What are the other things that you’re looking at reducing the AISC? It’s around $1,100 at the moment, you need to get that down. What’s happening?

Mark Selby: Yeah I know. I mean the key thing is going forward 1. is obviously the milling cost. 2. Is going to be scaling up the mining operation there. There’s a bunch of fixed costs at a mine. And if you can you know increase the rate your mining at that’s gonna help bring down those costs going forward. Now a lot of the drilling results that have been exciting in the western flanks area. The structures look like it’s getting quite large. And that creates… gives you more flexibility in terms of being able to use lower cost mining methods to pull that ore out. And then as I as I mentioned earlier we’ll we’ll be looking to have discussions with the royalty company at the right time in terms of is there is there a change to that royalty structure that makes sense for both of us.

Matthew Gordon: Who manages the… you mentioned technology there… who manages that? Is an outsourced thing? Or do you have your own in-house team managing the technical component?

Mark Selby: Oh in terms of the mine itself? We have our inside Technical Services Group.

Matthew Gordon: Right. Okay. Okay. Let’s get this get back to Dumont. It’s a huge, huge operation. You talked about JV’ing. Finding the right partner to JV with. .You’ve begun conversations?

Mark Selby: Yeah. We’ve had discussions given our relationships in the Nickel industry. We know all the leading players in Japan, Korea and elsewhere, and so Nickel prices spiked in 2014, 2015 briefly. And but at that time, we advanced discussions with a number of groups to provide different components to financing package. Today it’s just a matter of we’ve kept a number of those discussions warm, so it’s just a matter of once this updated Feasibility Study is out, those sort of kick start discussions going forward.

Matthew Gordon: So that’s due out Q3 of this year?

Mark Selby: It should be out this quarter at some point.

Matthew Gordon: Right. Fantastic. Okay. So everyone’s sort of sitting by waiting to see what’s happening. So how much time are you allocating… I mean I look at the board and there’s a lot of advisors there…. it has grown rapidly as well, some pretty big names on there. How much time are you allocating between the different assets, because you’ve also got three different exploration assets as well, haven’t you.

Mark Selby: Yeah yeah. The key thing there is again I mean, we have we have people and teams are dedicated to each of those those assets group. So again given the activity and a focus of the company right now, it’s Gold and Beta Hunt. I’m spending a large majority of my time on Beta Hunt right now, but you know there is a block of time on Dumont. And then again, we’ve got some great people with Dave Chrissy running Orford. He doesn’t need too much help for me in terms of driving that asset forward.

Matthew Gordon: Okay so look what I’d like to do, and I know you don’t have much time today but I’d like to come back to and maybe have a conversation with you around technical component of the assets. And perhaps that’s something we can do with your head of geology etc. But with the time we’ve got left. Can you talk about the finances and financing. You’ve announced recently the financing of $12M. Why did you do that?

Mark Selby: And so again we had this coming $25M potential payment, if we had to exercise the option. Again the risk of announcing an option to do something without the financing fully in place at that point, is… the market sells off in advance thinking that you’re going to come to the market with a big raise. So we thought it was important to do that raise at that point in time. If the deal did not go forward we’d be able to use that cash to do more exploration at Beta Hunt. I’ve said to investors before, I said you know if there’s someone like Osisko on this asset, there’d be 12 drill rigs going. There’s just that many targets to go after. And so. Yeah so we put that in place. With that and with the financing that we’re looking at right now, and again we’re making good progress on a number non-dilutive financing opportunities. We’ll have the cash that we need to complete the deal, and the cash will need to continue to move those assets going forward.

Matthew Gordon: And obviously the the the the large nuggets that are at the end of their world tour. A monetisation event there.

Mark Selby: We’re monetizing those which feed in to our cashflow.

Matthew Gordon: Can you give us a sense of what they’re worth, because I’m not quite sure how you go about selling something like that?

Mark Selby: Yeah. Basically I mean we’re looking at premium somewhere, we’ve been offered somewhere between 50% and 100% type premiums for most of the most of the stones so we’ll be working with some advisors to get those out the door sooner than later.

Matthew Gordon: Right. Right. But no sense of what range you’d expect there.

Mark Selby: But what 50% to 100% premium on top of the Gold value.

Matthew Gordon: Right. But you know what that Gold value is?

Mark Selby: So yeah we do. So I mean you know we have almost 4,000 ounces in specimen. And other 2,000 4,000 ounces of value.

Matthew Gordon: So we can do the maths. Yeah. Okay. Now I mentioned you were rather impressive boards and some of the names on there but you will see some process shareholders. Not least of which is a certain Mr. Sprott. What his involvement? Is he involved actively in the business or is he just a shareholder?

Mark Selby: No I think you know he’s just a shareholder. You know we do talk from time to time. And he also publicly expresses opinions as well I think. The key thing is he likes high-grade Gold exposure. You know as soon as the announcement came out of the Fall, he acquired his position at that point in time. When we first discovered Gold, high-grade Gold, traditionally where it was found at Beta Hunt, alongside the Nickel deposits, he had become an investor at that point in time as well. So he basically came back in and up this position. We’re really grateful to have a really great Gold investor like Eric involved in the story.

Matthew Gordon: For sure but he has been vocal in the market. He said that he’d like more guidance from the company. Do you think that’s a fair comment?

Mark Selby: I think it’s again, it’s not typical of a junior to have sort of two major assets and two …you’ve got Gold in Australia and Nickel in Quebec. And so I think investors, including him, want to know where we are and where we’re going with both. And I think once the Feasibility Studies at Dumont is done, we’re kind of talking about what’s going to happen on that front. I think it’ll be very clear to investors there. Again I just want to drive home most of my net worth is tied up in this company. And so you know we will, I’m not here to build an empire. I’m here to create value for shareholders. And if it means both those assets get sold by September, great. If it means we have to continue to advance and develop them for another 12 months, then we’ll continue to develop them over that timeframe.

Matthew Gordon: So I think that’s fair enough. So I think your answer would be that… It’s a fair comment. You’re looking to issue more guidance and you’re looking to create more value because you’re aligned with shareholders.

Mark Selby: More clarity in metric for sure. And again I think we have a Gold Investing base today, and I guess I think for those Gold shareholders are nervous that we’re going to sort of cross subsidize things or sort of muck things up a little bit. To be very, very clear. There is a pile of cash in the Dumont joint venture that is funding those activities. And so today Dumont is a self-funding entity. Self-funding asset, at this point in time.

Matthew Gordon: I mean that’s that’s fantastic for shareholders. I mean but when do you think the entire operation becomes self-funding, because obviously people are looking at their shares go up in value. So funding is the moment where things get exciting.

Mark Selby: I mean I think for Dumont to be able to the next stage on a Feasibility Study is really to a construction decision. And at that point in time, we’d like to have you know a big project partner come in and work with us, and Waterton in terms of being able to provide the remaining help to provide the remaining capital that will take it through to production, so that hopefully the amount of dilution that’s required to get that project going, will be very low or zero going forward. Again we can spin that out into a separate entity, we can joint venture into separate entity with somebody else. You know there’s a full range of options that we’re open to and looking at.

Matthew Gordon: Okay. I think that’s a good comment. I mean for me I guess what I would like to understand is that investors have got high hopes in this company because you’ve done so much so quickly. It’s been really impressive. If you feel that you believe in.. there’s more appreciation to come for them, because of what you’re doing with Dumont, what you think’s happening with the EV space and Nickel, and you think that people should continue to support the business countries where you’re head’s at?

Mark Selby: Oh yeah. Again you know putting my money where my mouth is. I bought my two largest single purchases of RNC shares ever value wise were back in earlier this year and the end of last year. You know in the $0.50s and $0.60s at share prices. I was buying them at those prices because I thought the stock was undervalued and can see value from here. So we know today where we’re trading in the high $0.30s. No I obviously believe there’s a substantial amount of upside from here going forward.

Matthew Gordon: Well I mean cut short though because I know you’re short of time today but we know that we could perhaps catch up again. I think potentially you’re in London next week. We’ll be able to get into some of the detail and we’ll certainly be taking some questions from the investors out there, potential investors and perhaps we can address those then. But thanks again for your time and see you next week.

Mark Selby: Yeah thanks Matthew. Take care sir.

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Golden Arrow Resources (TSX-V: GRG) – Leveraging the Price of Silver in Argentina and Chile (Transcript)

We interviewed David Terry, Director of Golden Arrow Resources (TSX-V: GRG), the Gold, Copper, Silver, Lead Producer and Explorer in Argentina and Chile with 4 assets.

David’s top reasons to invest:

  • Experts in exploration in Argentina.
  • This team has found 4 significant deposits over the last twenty five years.
  • Ability to finance the company.
  • Portfolio of 4 projects in Argentina and Chile
  • Have structured partner JV’s.

Click here to watch the interview.

Matthew Gordon: Hello David. How are you?

David Terry: I’m fine. Good morning.

Matthew Gordon: Fantastic, thanks for taking the time to talk to us. I know it’s early there. So David I thought we’d kind of kick off by introducing Golden Arrow to our audience over here in Europe. Perhaps you can start by telling us a little bit about yourself and your relevant experience.

David Terry: Well I’m one of the directors of the company and I’ve been with Golden Arrow since it was formed in 2004. Golden Arrow is an Exploration company has been mainly focused in Argentina over most of its life, although it’s just recently branched out into Chile and acquired two advanced stage projects in Chile. But  we’ve been fairly focused on Argentina for most of the company’s life. I’m a geologist by background, and so I’ve been involved in a lot of the property, review, acquisition, Exploration program, management and that sort of thing.

Matthew Gordon: Great. What were you doing before that? Where it have you worked?

David Terry: I started off my career working for several large mining companies. My first work actually as a student and then went on after university was with the old Consolidated Goldfields, which was a large company back in the day. Worldwide scope and I worked for the North American subsidiary of that. And I will work several other large companies including Kamenco, Hemlow Gold and finally Westmin Resources, more of a medium sized company acquired Boliden, the Swedish mining company, in the late nineties and worked for them for a while too before sort of starting to focus on on smaller companies.

Matthew Gordon: Right. You’ve been around the world, been around the block. And how has in which aspects of that is most relevant to what you’re doing at Golden Arrow Resources.

David Terry: Well it’s all a cumulative thing with when you’re when you’re a geologist focus on exploration. The more projects you work on and the more different areas, the more types of geology and mineralization you see. It all adds to your experience and helps making there hopefully the right decisions, when you’re working on a project.

Matthew Gordon: But you’re an explorer not necessarily a developer or producer?

David Terry: That’s correct. I focus on… I find the metals.

Matthew Gordon: Find the metals, good. Now tell us a little bit more about the team that you’re working with. Obviously you’ve got quite extensive team there. I mean who are the most active and relevant members of the team in terms of where you’re right now?

David Terry: Well Jo Grasso, the CEO and founder of the company, has been an entrepreneur, who’s been focused in Argentina for the whole time he’s been in the mining sector, more than 25 years now. And so he’s the is the founder and leader of the company and certainly one of the largest shareholders. We’ve got Brian McEwen, who’s the Vice President of exploration. Again very experienced mining professional running the exploration and he did a lot of the work on six years which is now part of the operations of bringing that along through all the different exploration and development stages Niko Cacos He’s a vice president with the company he’s been there since the beginning. After a lot of the administration and and business deals and that sort of thing. In the company, we’ve got Alf Hills on the board, who’s very experienced mining engineer. It’s been a big help since we’ve sort of transition from being solely an exploration company to having this production profile. And John Gammon and other very experienced geologist on the board. Lou Salley, a very well known legal Mining lawyer based out of Vancouver here. We’ve got a very well rounded and experienced team, and especially we’ve got an excellent staff in South America, based in Argentina.

Matthew Gordon: Yeah I guess that’s critical. Working in South America. South market generally it’s not easy unless you’ve got a local team with local expense. I mean before you can get into the projects themselves, can tell us a little bit about the Grosso Group as a whole. It’s a relatively new enterprise is it or has been around for a while?

David Terry:  Grosso Group has been around since the early 1990s and so it’s since it’s a management group that has several public companies within its portfolio. And and Golden Arrow is one of them and other one is Bluesky Uranium right now that’s quite active. Bluesky has discovered a Uranium Vanadium deposit also in Argentina.

Matthew Gordon: But tell me about the Grosso Group. They they have other companies in the group say what is their focus? I mean are they are they large enough to be able to focus on four different projects at the same time or is this project their number one focus?

David Terry: They Golden Arrow right now it’s been the flagship company, if you want to put it that way. But the idea with with the Group sort of set up is to share overhead costs between companies. Obviously there is some similarity between the boards and management of some of these these companies, but there’s also differences as well. And so it’s really a much more efficient way to run public exploration company.

Matthew Gordon: Yeah. But I guess with my investor hat on you also need to or you want to see focus. You want to know that the time, money and effort is being spent on the project that you’ve invested on.  It’s just interesting to understand the approach there.

David Terry: Yeah I mean for Gold Arrow. For instance, Brian McEwen, the VP of Exploration, on Golden Arrow is focused entirely on Golden Arrow. Joe Grasso is the CEO of Golden Arrow. He’s not the CEO of any other companies, and he sits on the board of several of the other companies in the Group.

Matthew Gordon: Okay so you’re saying the team on Golden Arrow is focused on the project, but the holding group as it were has a number of teams which work on individual basis.

David Terry: That’s right, yeah.

Matthew Gordon: And again so just on the whole Argentinean, Chile, South American component of this. It has been a difficult place to work. It can be a difficult place to work. So what are the components that you look out for? Your job is risk mitigation so who manages that process in country?

David Terry: Well we’ve got several people that work on that in country and we like… in Argentina for example, we work with the government of the day and obviously some may be easier to work with than others. Argentina itself is regulated into the mining industry provincially like Canada is. So you’re you’re often dealing with provincial governments and then also federal oversight and relationships that have to be built there as well. But that’s an ongoing process and I think we’ve worked very hard at establishing good relationships with all levels of stakeholders and governments in the areas that we work in and we put a lot of effort into that. And I think we’ve been quite successful in terms of working in Argentina. If you’re in the good mining jurisdiction, like good province for mining, then it’s actually a great place to work.

Matthew Gordon: That begs the question are you going to get province?

David Terry: Yeah well Jujuy is the province where put operations is in and I think our record there speaks for itself. We discovered the Chinchillas Silver Lead Zinc deposit in 2012, and started drilling it off and put out 2 Resource estimates, 2 PEA’s on the backs of those Resource estimates and then entered into a JV and then maybe I’m getting ahead of myself here, with us.

Matthew Gordon: Well. Let’s go into that because there’s two components your business.

David Terry: You know we made a decision to construct the mine Chinchillas in March of 2017 and and by the end of 2017, early 2018, we had a permit to construct a large open pit mine. And there’s not many places in the world where you could get a permit in that sort of time. We didn’t have to permit a new tailings facility or processing plant. We’re just building the mine site.

Matthew Gordon: By any standard that’s impressive. But tell us about that relationship with SSR. You’ve got a 25% stake. What does that mean? 25% of what? The equity but what else does that give you?

David Terry: It’s a participating interest, 25%, participating interest in Puna Zinc which is a holding company which owns 100% of the Chinchillas Silver Lead Zinc deposit that came for Gold Arrow that we discovered. And the Pirquitas mine/ mill complex in remaining mineral resources that Pirquitas. So it really combines the assets, formerly held by the two individual companies, into one entity and we own it 25% interest in it and SSR owns 25%.

Matthew Gordon: So what what stage is that?

David Terry: They are the operator. They’re the operator obviously they own 75%. They announced that the project had reached commercial production in December the 1st of 2018. And so we’re in really the first quarter, and approaching the end of the first quarter of commercial production on Chinchillas.

Matthew Gordon: Right. And what what could that mean for your organisation? Obviously commercial production means cash flowing, but in terms of… I don’t know what is the debt situation there? When is there going to be free cash flow? When do you actually get to see the upside?

David Terry: Well all of these are all very questions, and obviously, I can’t answer all of them right now. The situation… we owe… we’ve built up some debt with SSR that helped us fulfil our portion of the capital expenditures. Some of that came from cash that we had on hand and some of that came from earnings out of processing stockpile material, that the operation is doing ever since we formed a joint venture. So the commercial production was started in December. We’re into the first quarter right now of production. We’re trucking upwards of 3,600, 3,700, 3,800 tons per day between Chinchillas and Pirquitas. The forecast for 2019 is 6Moz-7Moz of Silver, in addition to Silver & Lead production, And the forecast cash cost of that production is $8-$10 per oz of Silver. And so in terms of answering your question, is when will we see the cash flow, well we’re going to see what we get what the books look at the end of the first quarter here and then go from there.

Matthew Gordon: I guess the plan like like all things like this he want to build out the Resource and make this a sizeable operation.

David Terry: It is a sizeable operation. I mean producing more than 8Moz  ounces of Silver equivalent on an annual basis, is a significant size Silver mine. It is one of the top producers.

Matthew Gordon: You always want more don’t you?

David Terry: And the Reserve is quite a significant Reserve, of more than 80Moz ounces of Silver equivalent. In addition to the Reserve, there is significant mineral resources which are not currently in the mineral Reserve. Some of those could potentially be added to the Reserve in the future, depending on metal prices or potentially further drilling and that sort of thing. And there’s other options for for expanding things in the future as well. In terms, of there’s already existing mineral Resources, higher grade mineral resources at for Pirquitas.  Underground Resources that the joint ventures evaluating, potentially bringing on stream at some point to supplement or from Pirquitas. We’re ramping, we’ve ramped up to 4,000 tonne of day sort of benchmark from trucking ore from Chinchillas / Pirquitas which is a distance of 45km by road. There’s excess capacity already in the mill. So that can be brought up to 5,000 tonnes a day.

Matthew Gordon: What does all this mean? David what does it what does all this mean for your investors? What’s the plan for it? Are you looking to run it for cash or are you looking to sell it? I mean how do you assure shareholders benefit?

David Terry: Well I mean obviously, if We decide to transact at some point in the future then you know that they’ll benefit from that in terms of having a company with a large amount of capital, whatever that is. But going forward in terms of our participating interest, the mine plan obviously calls for more production of 8Moz ounces of Silver on an annual basis, and depending on what the Silver price is, that could be a significant revenue generator. And if the Silver price performs well and and everything comes in on budget and on plan as it has so far with with Puna s operations then there’ll be some cash flow coming.

Matthew Gordon: And and do SSR have an option to take you out at some point, if certain hurdles are reached? What’s the relationship?

David Terry: Right now it’s just a participating interest. I mean obviously…

Matthew Gordon: There’s nothing built in?

David Terry: There’s no prearranged route for them to do that.

Matthew Gordon: What I’m hearing is you’re going to assess this as you go along and…

David Terry: We’re really just getting going on it.

Matthew Gordon: Right. Needed to deal with that because I needed to understand how that fits in with what I think you’re more excited about I guess is the exploration potential. You wanna tell us a little bit about that.

David Terry: Golden arrow has obviously been an exploration company up until recently, through most of its life exclusively, and we’ve assembled quite a large portfolio of five potential projects in Argentina, over the timeframe we’ve been in existence. And some of those are located next to large projects in some of the prime mineral belts in Argentina. But once we made that transition, with Puna operations and formed the joint venture and they became the operator, we started looking a bit further afield for opportunities to take advantage, I guess of the situation in the mining industry in general right now. With companies having a challenge raising money and access to capital and so forth. And so we acquired two options on two advanced stage projects in Chile that are in the same area North of Copiapó. Both have what would be all historic mineral Resources on them right now and we think that there’s good avenues on both of those to add significant value.

Matthew Gordon: Okay. So I mean I mean tell us a bit about those properties what what are you expecting them to be? Obviously you’ve got a team exploration team there and that’s their expertise. What do you what are you buying into? And what are you hoping to create with them?

David Terry: Well I’ll start off with Indiana. It’s a Gold Copper vein system, north of Copiapó. It’s got a whole array of Gold Copper veins with two primary orientations. It’s between two strands of the Atacama fault and had some work on in the past, some artisanal type mining. And a fair bit of exploration, fairly recent done by the group that we acquired the property from. And they’ve completed drilling, surface sampling, mapping, trenching and so forth. And had a Resource estimate completed on the property it was done 43-101 standards but historical resource. But it totals 600,000 ounces of Gold equivalent. With a little bit more value in that equipment equivalency calculation coming from Gold and Copper but more or less similar values. And that’s just really on one small part of the of the vein system. So we think that there’s potential for expansion of that, and we have to do a bit of work to confirm it. And bring it up to what we would consider to put out a Resource estimate. The property is also permitted for production. It has two ramps, which access the key parts of the vein system underground. And so it has the potential for some relatively near-term production and that this area has a lot of mining infrastructure in Copiapo., And there’s processing plants, and that sort of thing within easy driving distance. So we’re we’re really at the point right now where we’re putting together the information on it, into a 3D model. Of planning out how we would approach the exploration on it, and also evaluating potential for relatively near-term production.

Matthew Gordon: So I mean you’ve got to be really confident in that. You know, I’m looking at the terms here. $100,000 on payment on signing, $15M over the next four years and prior to the payment of the last $7M and MSA he’s got the option of retaining 25% of the project on a pro-rata basis. You’ve got to be fairly confident walking into a project like this to commit to $15M before knowing really what you’ve got. So is that the case? What’s lengthy this this confidence?

David Terry: Well we’ve done quite a bit of due diligence on it. Obviously we’ve got a great technical team down there working on it.  And house here and and you’re right it’s not a expensive property, and so this is a property that will have to be moved forward and in a rapid manner, in order to to justify…

Matthew Gordon: Where’s the where’s the money coming from?

David Terry: Where’s the money coming from? Well we’ve just raise some money.

Matthew Gordon: How much have as you’ve just raised?

David Terry: We’ve just raised the $4.7M.

Matthew Gordon: So just understanding it. So $15M over the next 48 months. How does that break down? Is that a quarterly or on your payment? How long basically does your $4.7M last.

David Terry: We’re just working on our budgets right now. So you know all the different pockets where there has to go. But yeah I mean we will… We’re working on the alternatives to fund this going forward. And they are annual payments.

Matthew Gordon: And their annual payments. Okay. So spread equitably presumably?

David Terry:  Well they’re back backloaded.

Matthew Gordon: OK. That’s Indiana. So that’s your best target. And then you’ve got Alantida as well?

David Terry: Yeah. Which is 35km 40km to the East of Indiana. It’s a bit of a different type of project. It’s larger in surface area. It contains a very large, relatively low-grade Copper Gold porphyry deposit that was discovered by InMet and drilled by InMet and further worked on by First Quantum. After the takeover of InMet. But the historical Resource, and again this is historical, not a 43-101 compliant Resource but it was completed by those large companies. Total 427Mt of 0.43% Copper Equivalent.

Matthew Gordon: So that’s a very different project?

David Terry: A different project but we acquired this basically because on the periphery of this large deposit which is which is fairly deep where it is there’s some near surface Gold copper scarring mineralization. And the eastern body of Scotland mineralization has got some drilling in it but the western one was actually not part of this property when in that first quantum where we’re working on it and we basically what we really sort of added to the picture here is we’ve consolidated land owned by three different parties and turn it in Kinross was one of those. And so we’ve consolidated this larger land position that incorporates the Gold upper rich garden area to the west which is exposed it surface has quite a large lateral extent and has had no really modern exploration that we’re aware of. There’s some historical workings in that sort of thing on it and And so that’s our initial focus on this property is this area that we can basically surface and and the graves that we’ve gotten from our due diligence sampling in that area shows that there’s quite widespread upper escarpment right.

Matthew Gordon: Okay. So you’ve got a bit of work to do there and it’s relatively early stage so it can. But just looking at the terms that you’re committing to another $6M over the next four years says twenty one billion bucks in both of those projects is the recent raise going to pay for the development of this asset as well. In terms of moving it to the next stage.

David Terry: Well initially it’ll start to help us with that but again and we’ve got to you know obviously bring in other capital to really advance this forward as we want to.

Matthew Gordon: Right. And what’s the timing on this with this taking a slight backseat or is this in terms that you’re waiting you’re…

David Terry: No we’re working you know sort of right now in our planning stages really on both there they’re very very close and we actually operate them out of the same camp.

Matthew Gordon: Okay. Yeah it’s quite close.

David Terry: Yeah. we’ve got the same team that can deploy to either one.

Matthew Gordon: In terms of your business plan per say for for driving this forward. You guys are still working on your budget. That’s what I’m hearing and you will work out how you apportion your time, well time is money, and money across the projects to advance things. Yeah.

David Terry: Yeah.

Matthew Gordon: That’s the idea. Okay great. You’ve also got another project Antofalla in Argentina. Is that is that something that’s on the ‘To Do list’ or is that just an option?

David Terry: It’s an option and again we, I guess that’s the only other option that we have right now. The other projects that we have are all owned 100%. And that’s the thing with Argentina, is the actual cost for keeping properties current, in terms of the fees or however you want to call it, is relatively low comparable to other jurisdictions.

Matthew Gordon: But there is an expectation from them that you will get on and start drilling, and start spending money, developing these things out?

David Terry: Basically the way it works there, is when you acquire these initial packages of land, you have to either have to downsize them over time, and continually work on them.

Matthew Gordon: Okay well maybe maybe that’s something which you can, that project Antofallo. You can tell us a little bit about you know as things progress.

David Terry: Well we acquired Antofalla, because it had geological similarities to Chinchillas. You know, it’s a dome complex of these young intrusive volcanic complexes coming up through through older sedimentary rocks. And and we just we saw a strong similarity there and so we’ve done a little bit of initial drilling. And we’re just deciding if we’re gonna continue on with that or or go some other route with that project.

Matthew Gordon: Yeah. So just just to help the our investors understand the process. Because exploration it’s high-risk, high-return but you’ve got to lift up a lot of rocks to find what you want? So what has attracted you to this area what are you looking to achieve? You’ve optioned, sorry you’ve more than optioned,  you’ve got 3 projects, 4 include producing Silver at Puna. What are you hoping to achieve? And what’s the process you’re engaged with to do that?

David Terry: Well our our goal is to find new deposits and make discoveries which are gonna be attractive to people who want to develop mines. And like larger mining companies. And you know we’ve done that with our deal with SSR. And with the projects that we’ve entered into agreements on, and obviously their options, and if we get a bit further down the road on number one of these, or any one of these, and they don’t meet up to our expectations, then we will we’ll move on. I mean that’s something that I feel quite strongly about, is you know you can’t get married to a project. You have to continually assess it on its merits. And so you know what I look for on a project is something that’s got significant size and it’s something that could be developed in the lower quartile of costs, for or for that category of deposits. Because if you’ve got something that’s relatively low-cost compared to other comparable projects or mines and then you’re gonna be able to weather through the ups and downs of the commodity cycle.

Matthew Gordon: And what is the indication? I mean you’ve said there’s a lot of other mines in the area. I mean what sort of quartile performance, cost curve performance, are they operating in the lowest somewhere in the middle.

David Terry: I think it’s all over the place. And when I said other mines, I mean you’re talking about an area Copiapo in Chile, there’s a lot of those that are advanced exploration projects.

Matthew Gordon: Understood but obviously, underground mining a a bit more expensive open pit. So it’s you know the economics are important to understand and as you say don’t get wedded to a project if it’s not going to work out. So I got it. But the other thing that you guys have to do is find the money to be able to do all of this, presumably to take it to a stage where you, either can go and raise more money, or you do an SSR type deal, where you bring in a partner right. So is that all part of your thinking?

David Terry: Yeah I mean obviously where we’re continually working on  financing the company, as most people in this business are, but you’ve always got to be open to all the alternatives, like whether it’s forming a joint venture or doing a corporate transaction, or a project transaction. Obviously all those things are always on the table for the right terms and the right situation.

Matthew Gordon: I guess again, I just I keep coming back to what investors need to understand about exploration mining. It’s can expensive and unrewarding, but it can also be extremely rewarding if you get it right. And I guess that’s what people are looking for.

David Terry: Part of the philosophy behind going and firing these option deals, and they are option deals that start off with the lower payments and escalate over time. So as I said before they’ve gotta live up to our expectations as we go forward and that’s you know all those deals are usually structured that way, so you have time to get your feet wet and do the work that you want to do to test out your theories, and see if you have the projects hold up. But you know both of those projects have have a lot of mineralization on them, and widespread mineralization, and both of them have the potential for further discoveries, right on those properties. And as you know the best places to find new deposits and larger deposits is on properties that have had work demonstrate that there’s already significant mineralization.

Matthew Gordon: Right. Okay. So some easy questions for you now. 2019. What are the targets that you’ve set yourself? And how are you going to achieve those?

David Terry: Well I mean certainly we hope to see Puna performing as planned, and continuing on with sort of at least 4,000 tonnes a day being trucked between Chinchillas and Picitas mill. And produce a 6-6Moz of Silver. And so we’re hoping that that gets achieved obviously. That’s going to be very important to us. And and then moving forward on these other projects and starting to execute the plan and carry out the the work that’s needed to assess them. And we’re continually working at that and looking at all of our portfolio and the opportunities that are within it, and how to how to best manage that for the benefit of shareholders. The company is controls a lot of the shares, and so we’re certainly aligned with the interests of shareholders.

Matthew Gordon: How many shares to the management and board own?

David Terry: Well between insiders, friends and extended group, it’s close to 50%. I’m not sure exactly what the number is but it’s very large.

Matthew Gordon: Okay maybe a tough one for you. What do you think the five reasons that investors should be looking at Golden Arrow Resources?

David Terry: Five reasons. OK.

Matthew Gordon: Any order you like.

David Terry: Well I think you know experts in exploration in Argentina. And got a great team of people that have mentioned this at the beginning but the Grasso Group of Companies has found 4 significant deposits over the last twenty five years. And there’s not many other group groups that can have that sort of a track record. There is a lot of experience there. We certainly have a good ability to finance the company, and we’ve always been able to do that. How many am I up to now?

Matthew Gordon: Three.

David Terry: We’ve got a great portfolio of projects that we’ve put together. You know we’re always looking for partners to help us come in and help help advance them. And you know we feel that we’re undervalued in the market right now. So I thin…

Matthew Gordon: You and everyone else I’m afraid.

David Terry: And we’ve leveraged the price of Silver as well.

Matthew Gordon: True, it looks like a good year for Silver and Gold. Well and copper. David thanks very much for your time. I appreciate you giving us that insight into the company. It’s the first time we’ve actually spoken with Golden Arrow. So I appreciate that and we will look forward to getting an update with you in a few months 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.

Pure Gold (TSX-V:PGM) – Strong Fundamentals and a Listing in London to Broaden Appeal (Transcript)

Pure Gold Mining (TSX-V: PGM) President & CEO, Darin Labrenz acknowledges frustration of the static share price but believes their underlying fundamentals and ability to add more ounces to their Resource will be recognised.

Click here to watch the interview.

Matthew Gordon: Hello Darin, how are you?

Darin Labrenz: Very well. How are you?

Matthew Gordon: Not too bad. Good to speak to you again. We caught up in January and you let us know what you were up to then. A few things have happened since then. So maybe you start off and give us a couple of minutes on where things are today and then we can get stuck into your plans for this year.

Darin Labrenz: Sure. As a reminder, our project is in the heart of Red Lake. Madsen Red Lake Gold project and we have had a very eventful 2019 thus far. I started out with a Resource update that came out in early February. That Resource update outlined a mineral resources 2.1Moz set at 8.8g/t in the indicated category and another 470,000oz at 7.7g/t in the Inferred category. So very robust strong Resource. On the heels of that, we released a Feasibility Study for the core part of the Resource, the main part of the mats deposit if you will and that Feasibility Study outlined a robust long life mine (LOM) with very low capital hurdle of CAD$95M and and after tax NPV of about $247M after tax IRR 36%. Importantly that Feasibility Study really is the base case, if you will, of the first phase of our development plan to highlight the growth and scalability of the project. We put out a Preliminary Economic Assessment (PEA) on some of the discoveries we’ve made up over the last several years. Those include Russet South, Fork and Wedge. And those those show an additional 4yrs in Mine Life. They’re shown as an end of mine life extension. They add $51M NPV in after tax NPV. But we think there’s a real opportunity here to continue to grow the Resources in those areas and look at potentially bringing forward in the mine life and looking scaling up assets.

Matthew Gordon: Right. Let’s just step up a little bit on some of the numbers. Tell us what you pick these assets up for? And when was that?

Darin Labrenz: Yeah. So we’ve had the Madison Red Lake project project for 5yrs. We’ve consolidated the land position over the over that time period. And our net cost of acquisition was $8.5M which is really remarkable when you look at what we acquired at the time. 47km squared of patented land, which means we own surface rights and mineral rights. At the time the Resource was 900,000 oz Indicated, 300,000oz Inferred. We’ve effectively doubled it over the last 5yrs. And it came with infrastructure. There’s a mill on site, tailings facility, underground access and it’s permitted as mine. So really all of those features really lend themselves towards the robust Feasibility Study which we just put out.

Matthew Gordon: So I guess that will kind of inform some of that some of the numbers I’m about to ask you. So you spent $8.5M on that over the last 5yrs, you’ve double the Resource. I guess there’s some rehabilitation costs in terms of what you inherited in terms of infrastructure is there? Or is that is that all fully functioning.

Darin Labrenz: Yeah. For the most part it’s fully functioning. We incorporate in the Feasibility Study will be a improvement to the mill. We’re going to take that from 600 tons per day to 800 tons per day. We’re going to modernize it with instrumentation controls, introduce a gravity circuit, all to take advantage of some of the metallurgical results we saw as part of the Feasibility Study. So there is work to be done there. But it’s not just what I would call refurbishment. It’s actually improving the mill to improve the production profile of the project. We’re looking at effectively new mine here. All of the development that we’re putting in it’s new and existing brand new stopes and fresh rocket. So it really is a new mine that we’re looking at right.

Matthew Gordon: So tell me about some of the plans you’ve got for this year. I do want to come back some the numbers but tell me about what’s the plan for this year. You know in relation to cash you have at the moment. I know you raised a little bit of money recently with a Sprott Capital Partners, not to be confused with Sprott Global. So why did you do that and what is that money for?

Darin Labrenz: Yes. So that money was raised through the flow through markets here in Canada, which is provides a tax benefit to shareholders and enables us to raise money at a premium. It is directed towards Exploration. And so despite the fact that we’re on the cusp of production here at at a Pure Gold, we have not in the past, and we have no intention really take our foot off the pedal. We can continue to drive things forward. That money will primarily be spent on expanding the Resources that we see on these new discoveries. Looking to increase the confidence converted from Inferred to Indicated. And ultimately really tying to our plan which is to try and bring those deposits forward in the mine life and look at scaling up of the infrastructure once again. We’ve got a goal here of outlining a project that can deliver 100,000oz-150,000oz a year over a 10 or more year period. Again the Feasibility Study is the first phase of that development. The PEA we’ve put on solid studies as the next phase and tremendous exploration upside remains on the property right.

Matthew Gordon: Okay. Understood. So in terms of the elements which are going to cost money this year, what are those? In bullet point form.

Darin Labrenz: Yes. So we’ve got our Exploration program $5.1M that we just raised. And that’s going to be directed towards Exploration, as I described. We are right now looking to finance the project. Again it’s a CAD$95M initial capital requirement which we have around the world of projects is really one of the lowest capital hurdles out there. And that’s because we are able to take advantage of some of that existing infrastructure that’s on site.

Matthew Gordon: So just quickly what’s what’s your NPV in relation to the CapEx?

Darin Labrenz: CAD$247M on the base case.

Matthew Gordon: Right. And the CapEx?

Darin Labrenz: $95M

Matthew Gordon: Okay. So that’s okay. That’s a nice ratio right. Okay. And giving what IRR of?

Darin Labrenz: 36%.

Matthew Gordon: Right. So you’re well over 30 again. Okay. There’s a good numbers. Sorry please carry on with the rest of the activity.

Darin Labrenz: Yeah. So we have Endeavor Financial engaged. I’ve been working with us on the project financing front. And there’s. And there is significant interest in financing the project. Likely looking at a combination of debt and equity. The ability to leverage more debt on the project as it is a possibility given the infrastructure that’s on site there. With that project financing solved, we would look to construct. And it is a very short implementation schedule. We’re looking at about 13 months. From go point to to producing Gold. And so you know conceptually, if we have our finances arranged mid this year, we’d be pouring gold but the second half next year.

Matthew Gordon: And what sort of rates and what sort of volume and how does that scale up in terms of cash?

Darin Labrenz: So it scales up from initial production in around the 75,000oz range up to year 5 we’re producing a 125,000oz. And so we’ve got a core five year window in there where we’re about a 100,000oz a year we’re generating over $50M in cash flow on an annual basis. And so. So very strong core part of the production plan.

Matthew Gordon: Okay. Those is a quite interesting numbers here. So it comes to the question then. So what’s happening with what’s with the share price at the moment, because it’s been fairly static. You know high of 54, low of 53. It’s steady. Are people not interested in the story? The numbers would suggest they should be. So what’s happening.

Darin Labrenz: Yeah absolutely. I think there’s a bit of market disconnect there and you know clearly we look at frustrated the share price as it currently stands. I think we’ve suffered from from a few things here in recent weeks. One is a perception that we’ve entered into a dull quiet period where we need to go out and permit, to construct and there’s not a lot of news flow. And that’s quite typical of a mining project where you see those doldrums if you will. Ours is very different. We have a low capital requirement. Very short term execution schedule, as I’ve described. And we’re not slowing down as I indicated. We’ve got a $5.1 million Exploration program that we will be commencing here in the near term. And we’ll continue to advance our discoveries and look to grow those Resources. And so it’s gonna be an exciting period as we move forward. So I think we suffered a bit from that. There was some opportunistic profit taking from some shareholders. People who had been in the early days and had seen a rise from $0.20 cents up into the $0.70 cent range. And so we suffered a little bit from that as well. And then the perception that we’ve got to finance projects. I think those are all playing to where the share price is today.

Matthew Gordon: And what do you mean what do you mean by that? What perception?

Darin Labrenz: Dilution. The potential for dilution down the road and obviously as board / management group, we’re concerned about that. We’re all shareholders and our key is to maximize value and minimize dilution as much as possible.

Matthew Gordon: Right. Do you think that the Canadian market is bored of your story?

Darin Labrenz: I don’t think so. I mean when you look at the markets in general, I think fortunately they’re bored with the sector. And we’ve all suffered from that. But when you look at Pure Gold, you know we acquired this project we think it in … we perfectly time the market. There’s there’s no way conceivable that you could acquire a project like this for $8.5M in a more buoyant market. And so we are we’re acquiring today at a low point. So our cost of entry was quite low. We’ve been able to successfully raise money across the five year period to drill and advance the project. We’ve drilled over 200,000m. We’ve seen the Resource double over that period. We’ve now that first time disclosure of Reserves of 1Moz and 9g/t. So I wouldn’t say the market’s bored. We’ve been one of the few that have successfully raised money and moved this project forward. But we do suffer with this with the broader market to an extent.

Matthew Gordon: So why are you are you looking at an AIM listing?

Darin Labrenz: It’s not an AIM listing. It’s the LSE..

Matthew Gordon: LSE. Pardon me.

Darin Labrenz: And and really this to broaden the global exposure and so we think this is an important opportunity. When you look at the landscape, there’s this 1,200 companies listed on the TSX / TSXv. Move across to the LSE you’ve got a 155 companies. If you look at market caps $2Bn and less, you’re down to 42 companies. So we’ll be one of 42 companies. It’s a real differentiator. There is a structural shift in the funding dynamics here in Canada. And really that is a move from what I would call active management to passive management. And so you’ve seen the growth of ETF’s. Fund Managers / Generalist said ‘well I want some exposure to the industry, I don’t I’m not going to let them pick my companies. I’m going to put you know 8% into an ETF’. And what that’s done is it’s drawn funding away from those active managers and we’ve seen that pool of capital decline, same time as we’ve seen the the assets under management for ETF has grown over $14Bn. So that dynamic is played into the ability to raise funds. Our story is near-term production. It’s Canada. It’s high grade one of the highest grade development projects in the world. Tremendous growth opportunity, organically. Tremendous exploration upside and we think that will play very well to not just the U.K. market but the broader exposure that we see across the Asian markets and elsewhere.

Matthew Gordon: Right. So you think LSE opens up not just Northern Europe but also Asian market as well. So why not why not Singapore (Exchange) then?

Darin Labrenz: This is a… it’s a natural evolution for us. You know a last couple of financings we’ve conducted we’ve seen significant involvement over in U.K. and and in Europe. And so it’s a natural evolution for us.

Matthew Gordon: And I’ve got some roadshows in Europe, I’m guessing have you?

Darin Labrenz: Yeah.

Matthew Gordon: And I mean was this a precondition from some of the institutions? Has this driven your thinking as well?

Darin Labrenz: No it’s not a precondition. You know again this really is about broadening that global reach, ideally increasing liquidity and and increasing our exposure. You know obviously we will be a company that would be available for a UK only fund to invest in. And so that’s an opportunity. It’s not it’s not a precondition of any kind no no.

Matthew Gordon: Okay. So let’s let’s look forward to this year. Talk to me about why investors should believe that you’re going to deliver shareholder value, ie you’re going to drive the share price. I mean are we going to be looking at more institutional investing or are you also going to be taking to retail, high net worth and Family Office? I mean how do you drive that share price for people this year?

Darin Labrenz: Yeah. I mean we’ve got to broad mix, you know in our register now, between institutional ownership, high net worth, retail ownership. We’ve got some strong strategic investment, including our AngloGold Ashanti. And Rob McEwen, founder of Goldcorp. And we’ll continue to reach out to all markets moving forward. We think we’re fundamentally undervalued here. When you look at you know even our price to NAV basis we look quite strong. We’re in Canada. Not only that we’re in Red Lake which is a you know it’s one of the birthplaces of mining in Canada. Highest grade Gold cap in North America. We’ve got 1Moz of Reserves now at 9g/t that shows a very robust mine that will operate, in our base case for 12yrs, I have no doubt it has potential to go much beyond that. So we think that we’re going to drive real value by executing on our on our base case. Building on that first phase of development. But also I would point to the ability to continue to grow those satellite discoveries, to incorporate them into a future mine plan and the tremendous exploration upside we see in our property. I think those are all going to be value drivers. And again having that low capital requirement, having significant permitting in place and a real short to maintain current schedule it’s all going to make that value generation move very quickly.

Matthew Gordon: Yeah. And I guess the access to capital and the cost of that capital going forward. I mean you mentioned Rob McEwan. well-known in the industry, perhaps not so much this side of the pond. Has he been part of this thinking, in terms of your strategy going forward? I mean how involved is the guy?

Darin Labrenz: Yeah I mean we have conversations with with all of our significant shareholders. We keep people updated and so forth in terms of active involvement. They are they are passive from that perspective, but clearly we want to keep their relationship with all of our shareholders.

Matthew Gordon: And do you expect them to keep investing going forward in terms of the new rounds or are they going to sort of dilute that?

Darin Labrenz: You know I would expect to you’re going to see a mix in there. Some of the significant shareholders are clearly going to continue to invest and support the project. And and you see some turnover as well which we’ve seen over the last last month.

Matthew Gordon: Are you buying at the moment?

Darin Labrenz: We… Management has been buying. You can look at our reporting and we’ve all been buying and not only the market, but we’ve exercised a number of options to hold as well.

Matthew Gordon: Very encouraging. So let’s finish off. Gimme those five reasons again bullet point form sites so people can remember why they should be investing in you?

Darin Labrenz: Absolutely. One, we are in a very strong mining jurisdiction. We’ve got a what I would argue is the lowest capital intensity project out there from a development standpoint. When you look globally at a pool of 132 development projects that have an economic study completed, we’re 11th highest grade. And so we’re in that top percentile by grade. So we’ve got a really strong fundamental first phase of development here and very quickly into production start generating cash flow. The satellite discovery show the ability to layer on additional production. And beyond that we’ve established a mineral system that spans 5km, that’s wide open at depth. And I think that this has the potential to grow for a very long time. So it’s a good time to be a shareholder Pure Gold.

Matthew Gordon: Perfect. Thanks for the quick summary. I do appreciate catching up with you again we’ll speak in the next couple of months and so see how things progress. We look forward to seeing the share price being driven with some of some of that news and your outreach programs. Thanks again for your time Darin and we’ll speak soon.

Darin Labrenz: Thank you.

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.

Lumina Gold (TSX-V: LUM) – Turned $175M into $1.5B for Shareholders. Doing it Again With Ross Beaty (Transcript)

CRUX sits down with Marshall Koval, CEO of Lumina Gold. A precious and base metals exploration and development company focused on it’s Cangrejos project in Southwest Ecuador. This team is replicating its success of Lumina Copper.

  • It’s backed by Ross Beaty and several long term investors that have been with them through the Lumina Copper story.
  • Amazing assets in Cangrejos, Ecuador. Still has the potential to grow significantly.
  • Made returns for investors in the past with Lumina Copper, which raised about $175M to return $1.5Bn to shareholders. We think that the opportunity for large returns to shareholders still exist in this story.

Click here to watch the interview.

Matthew Gordon: Hello Marshall, how are you sir?

Marshall Koval: Great Matthew. Thanks for having me on.

Matthew Gordon: Pleasure is ours. So Marshall we’ve been wanting to hear your story for a while. So can you give us a two-minute summary of the projects? Elevator pitch if you will.

Marshall Koval: So Lumina Gold Corporation is an offshoot of the Lumina Group. And you’ll know the Lumina Copper story from the past. Ross Beaty developed that company. So it’s the same group and it’s the same basic business model as Lumina Copper. Basically adding value to projects,  de-risking them. These are generally large projects. The Cangrejos project that we have in Ecuador is a large Gold Copper porphyry system and from the Lumina Copper story we’re pretty good at porphyry systems. So the idea here is to add value, de-risk it, do the technical work we need to. But these type of projects are large-capital-costs projects. So ultimately, we’re an explorer-developer and we’ve advanced the Cangrejos projects since 2014. We’ve completed a PEA study on the project and now we’re in the field doing all the field work: drilling, engineering related to a pre-feasibility study, should we decide to move forward with one.

Matthew Gordon: Thanks for that summary. I guess it would be pertinent to start with understanding a little bit about you, your background and how you got involved the project.

Marshall Koval: Sure. So as far as the Lumina Group goes I’ve been involved since 2014, been a business partner in all of the Lumina Group endeavours. Personally I’m a geologist by profession. I’ve got 40yrs experience in the industry. A lot of it has been with major mining companies, engineering companies and prior to joining the Lumina group I was president of Pincock, Allen & Holt, which is an engineering company that did a lot of work on project finance as an independent engineer for banks on major projects like Los Pelambres. So my background is more in engineering development. I’ve been involved in building mines. So that’s kind of the thumbnail sketch.

Matthew Gordon: Okay, Marshall, so tell us a bit about the board. There’s some pretty big names associated with it – Ross Beaty, obviously. Who put this thing together?

Marshall Koval: So this was a Lumina Group effort and Ross, and then we have quite a few long-term investors that have been involved with this story: Rick Rule, Asif Sharif. Management owns quite a bit in the… Ross and management own quite a bit of the company, about 27.5%. I’ve got about 4% of the company myself. So we’re really well aligned with shareholders and that’s been kind of the philosophy of all the Lumina Group companies.

Matthew Gordon: And who are the active members in terms of the project itself?

Marshall Koval: So I act as the CEO, Scott Hicks is V.P. of Corporate Development. Martin Rip is the CFO. Martin has been involved with the Lumina Group companies for quite a while. In country are Vice President and Country Manager Diego Benalcazar. He’s our senior V.P. Diego is an Ecuadorian geologist with substantial experience in Ecuador and internationally and he’s been a key-player. And then on government, corporate affairs – John Youle, who’s been with the Lumina Group for quite a while. Leo Hathaway is the key guy as far as geology goes. He’s been with Ross and myself since 2004. So we have a senior management team that’s worked together on quite a few of these projects, both through Lumina Copper and today.

Matthew Gordon: How do you deal with local issues? You spend a bit of time in your deck talking about that. Obviously, it’s a fairly new mining jurisdiction, so how does that work?

Marshall Koval: Yeah, I mean basically, I’m directly involved myself a lot with the government relations and actually in the field with the communities as well. Diego Benalcazar, country manager is really key. He’s based in Ecuador. John Youle  our V.P. of government affairs is down there every couple of weeks. And so basically, we’ve got a pretty robust corporate social responsibility team focused on community relations and we’ve got quite a few people in the field in our camp. Good relations with local communities. We don’t have indigenous communities in the area and the closest community is about 7km-8km away. We have a lot of programs with several employees and it’s primarily agricultural areas. So a big focus of the company is on CSR and community relations. As I mentioned.

Matthew Gordon: And given the team has been together for a while, this is a long-term play, in terms of getting this thing through to production but that’s not necessarily your end-game. And so can you explain what your business plan is?

Marshall Koval: Right. So basically when we acquired the asset in 2004, we were an early-mover in Ecuador. We saw things were changing. We did a lot of work compilation and put a big portfolio together. And then, you probably saw last year in August, we split Luminex Resources out of Lumina Gold and that was more earlier-stage Copper projects and subsequently Luminex has deals with BHP that we’re working on now with Anglo American and with First Quantum. And that’s more of an early-stage exploration play. So the philosophy with Lumina Gold is that this is a development project. It’s on the development pathway. It’s large. Right now we have four drill rigs in the field and we’re drilling, we’re doing exploration drilling. We have a new discovery area called Gran Bestia. That’s separate from the main Cangrejos deposit and I can give you a bit more details later. And we’re doing the geotechnical, hydro-geologic environmental work. Also doing a pretty robust metallurgical testing program and we’re supporting all that with these four drill rigs. So far this year we’ve drilled about just shy of 8,000m. And it’s been divided between Gran Bestia deposit, where we have about six drill holes and +200m of drilling. And that’s really exciting because it’s got the potential to change the whole project, make it even bigger. The PTA had about a 400Mt project that we have identified. So it was roughly a 16yr mine-life and there’s a lot of things beneficial to the project. In Ecuador, it’s close to the port facility, it’s close to infrastructure, power, roads, that sort of thing that’ll help the project. So back to the start of your question, the idea here is to continue to understand the magnitude of the project, to de-risk it ethically, socially, environmentally and then move the project on to somebody that would build it. We’re looking at initial capital cost on the project of over $800M and then an expansion in Year 5, that would require another $400M roughly. So it’s a big-dollar project and we’re a one-asset company, a junior developer, so it’s logical that a major or mid-tier producer would take it on and build it.

Matthew Gordon: So if I just understand that, obviously, the management, the board, friends and family have got about 27.5% of the business. Who holds the rest?

Marshall Koval: So Ross and the management own the 27.5%. And then I would say friends and family beyond that, but as a close to 50%. We have a lot of long-term investors that have followed the company. The Lumina Group, the Lumina Copper and it’s a pretty strong investor base in Canada, the US and Dubai. That’s been a lot of the history of the people that have followed us.

Matthew Gordon: And in that context they’re high-net-worth’s or they’re retail?

Marshall Koval: There’s a bit of both. We also have some funds involved. You know, we have a couple of funds out in California and in Canada and New York that are following us. But we do have a retail base. We just recently listed on the OTCQX in the US to try to get a broader investor base in the US. So I would say there is a mix of all of the above.

Matthew Gordon: The reason I ask about the shareholding and the type of shareholders is… The plan, the business plan as explained by you, it seems to be ‘we’re gonna drill a whole bunch more and sort of work out the size of what we’ve got’. But how do you put that in the context of explaining to existing shareholders or new shareholders coming in what the plan is for creating value?

Marshall Koval: So, you know, I mentioned the Cangrejos deposit and we still haven’t totally defined that.  That’s the main deposit for the project and we’re drilling it now. So basically there’s an opportunity for that main deposit to grow but Gran Bestia, which is about a kilometre to the North-West isn’t included in our resource that we used in the PTA. And we’ve got some really long drill intercepts that are above the cutoff grade that were included in the mine plan and the PEA. So it looks like we have either a satellite deposit that’ll be a new starter pit for us, or to add mine life to the projects. So basically, if you look at the PEA resource we had about 8.5Moz of Gold and a 1Blbs of Copper. So this thing is really large-scale. And it’s growing and it’s got the potential to bring the Gran Bestia deposit. So if you look at where we’re at in the market as far as share price, we’re trading at a really high-discount to NAV. And there’s a lot of upside and we haven’t unfolded the whole story as how large this deposit is. And this was formerly a Newmont project, so what we would anticipate is, as we start to understand the larger nature of this and de-risk it, that there’ll be a lot of upward movement in the share price potential, with the Gold price environment that’s increasing. And we did the economics of the project at $1,300 Gold and $3.25 Copper. So that’s roughly where we’re trading in the market today and there’s a lot of optionality to the projects. So, if we go up to $1,400 Gold, for instance, the project gets a lot bigger. So the upside is being able to come in now and at a low-point in the market or relatively low -point. We moved up a bit since last year. And then as we add value and de-risk this, the potential to move up and, ultimately, just positioning the company with a buy-out.

Matthew Gordon: You touched upon a couple of points there. You’ve put the numbers in there at, well $1,400 on page seven, $1,300 on page eleven on the Gold and as you say, the Copper price is also quite well-priced, considering today’s pricing. Why have you shown the numbers using those high-prices, do you think it’s justified?

Marshall Koval: Well, basically, the study was done back in mid-last year and at the time those prices… We looked at analysts estimates, we looked at consensus, and looked at pricing going forward and that seemed like a good place to be. At the time when we released it, Gold was about $1,350. And then when we did most of the work and then when we released it, it moved down towards $1,300 and then a bit below.

Matthew Gordon: Will you be releasing an updated PowerPoint with slightly more discounted Gold and Copper numbers or are you going to stick with what’s in the deck?

Marshall Koval: So what I think we would do in the current market is be right in the same ballpark in… Our plan right now is to update the resource in the second half of 2019 and then we’d have most of the field work done, and the metallurgy, and basic engineering that we can move to a pre-feasibility study. And that would roughly take another year beyond the release of the resource estimates. So you know, my view-point is the current Gold price would make sense at this point in time to do the next study.

Matthew Gordon: But I think sort of generally you’re peers with the share price around $1,100-$1,150 in the deck, I just wondered why you hadn’t. And again with the PEA, do you feel that that’s quite an aggressive number or you feel that’s fair in relation to what you’ve got?

Marshall Koval: No, I think it’s a fair number. Basically, a lot of engineering backup went into this. I mean, you see a lot of… You know, my background is running engineering companies and serving as independent engineers for banks on projects. So, the way we look at a PEA, it’s a full industry scoping study. We do a lot of engineering backup to support it, and then we extract the results from the PEA and results from the scoping study and put those into the PEA.

Matthew Gordon: Right, okay. Because again, you know, the IRRs at the moment using a high Gold number, a PEA, which, typically, with my investor hat on, I’m gonna go plus or minus 30%. You know, the IRRs right now, they’re not complementary to what you feel you’ve got. Is that because, again coming back to, we need to be thinking as investors, we need to be thinking there’s a long term play?

Marshall Koval: Basically when you look at large projects of this sort of scale, you get a project like this up to, say a 20% IRR, which we show in the deck and I believe it was $1,400 Gold price roughly. There’s very few large-scale projects like this that end up with those kind of IRRs. So we feel pretty good and, obviously, we’re trying to de-risk it and improve the economics with the work that we’re doing, with the target to move up towards that 20% IRR range, with the discount rates as we showed them in the PEA.

Matthew Gordon: Right. So I guess I’m trying to get the balance between getting in early with some potential upside as you build out the resource, because you’re talking it’s a very large district-wide body you’re working with here. This is not a small company or a small asset because there are more attractive grades out, there are more attractive immediate, seemingly immediate returns with lower-costs associated with them. I mean, how are you selling this to people? When you’re talking to investors, what are you saying to them?

Marshall Koval: I mean it’s still a growth story as we speak right now, like I mentioned earlier with the exploration works on. And like I say, Ecuador is evolving and it’s becoming a premier mining destination and the sovereign risk related with Ecuador is going down substantially. I mean, we’ve seen in the time that we’ve been in the country, the royalty rate… the windfall tax disappear, the royalty rate reduce, the tax risk fiscal tax regime reduce, so that you attracted majors, like I mentioned earlier, BHP, Anglo, First Quantum, Newcrest. So basically it’s one of the last systematically explored jurisdictions in Latin America and probably the world. So basically the upside for investment, investors are participating in the early-stage of the project. The project has enough legs that will likely build this mine in the future and we’re doing all the work we can to identify the scale of it, which looks like it is growing at this point. De-risking in, putting in place the permitting, and if you compare it to a lot of the… Let me just scroll through the deck here for a second. This is kind of important to go to page 14. Basically what we did here was we looked at Gold producing projects that have the potential of over 250,000oz/yr. And on this slide what you’ll see is projects in blue and then projects in yellow. So basically Cangrejos is the fifth-largest global development project, controlled by an independent developer. And all the blue ones are majors and mid-tiers. And if you look at how it stacks up, the project is significant. I mean we have about 373,000oz of Gold production a year.

Matthew Gordon: What are the assumptions that that’s based on?

Marshall Koval: That’s based on the PEA study and that’s the economics that we did in the PEA study. So basically, if you go, let me scroll around a little bit more here, the slide number eleven. Let me just walk through the PEA metrics real quick and you’ll get a feel for it. So on the bottom left on page eleven we’re looking at the initial production of 40,000tpa. Initial capital cost there is $831M and then in year five we would finish the expansion to 80,000tpd. That’s another $406M of initial capital. And then the life of mine – 16yrs. So there’s another $271M of sustaining capital. And then if you go up to the production scenario, in the first 5yrs you get 270,000oz of Gold a year and 25Mlbs of Copper. And then at the expansion, starting in Year 6 through 16, that’s 421,000oz/yr for the overall average of 373,000oz. And the other aspect that the project has in its favour is low operating costs. So if we look at C1 cost, we’re looking at $523/oz. And then if you look at AISC on Gold, we’re looking at $569/oz and then, because it has Copper, if you look at Gold equivalent, our cash costs are $706 C1 cost and then $741 AISC. So that gets us down to the pre-tax IRR of 15%, in the NPV – $920M and that’s at $1,300 Gold. Now one of the interesting aspects of this is we did this on the 5% royalty rate and the government has just changed the scale on the royalties that you negotiate with an investment contract. So if we were to go to 3% of the bottom grade and then… The government did this acknowledging that some of the projects, like Cangrejos don’t have the high grades that say a Lundin Gold, Fruta del Norte does. So the government, if we could get 3% that would bring the post-tax NPV up to a billion dollars roughly. So we’ve had initial  conversations with the government and we need to continue to move the project along to get an investment agreement in place. So you know there’s upside in that context.

Matthew Gordon: But just again for investors new to you, new to this part of the world, explain to them what large-scale low-grade mining involves.

Marshall Koval: I mean basically long mine life and I think it’s in economy of scale type project. So for instance Ecuador has low power costs, it’s about 6 cents per kWh. It’s a diesel-producing country in its oil sector so diesel is relatively inexpensive. The project itself has a low stripping ratio. So when you look at all of these aspects from an operating cost, when you look at whether this project will be feasible and during production will it throw off generate good, free cash flow. Really it comes down to two things. It’s not so much the sustaining of the initial capital, it has more to do with the operating costs and the Gold price. So we can’t control the Gold price environment but we can, with the scale of this thing, be very effective in the operation of it. So there’s quite a few things going for it. That’s why you see on page 11 that it’s got favourable cash costs. And when you benchmark it against a lot of other Gold projects in the world and if we go over to slide number 15, for instance. When we start to look at average Gold production versus all in sustaining costs, Cangrejos ranks really well compared to its peers. And that even includes Fruta del Norte that’s quite a bit higher grade. We’re producing a similar amount of Gold every year. And then if you look at the mine life versus the U.S. dollar capital per ounce of mine, the capital efficiency, as you would say, it’s sort of $250/oz. So that benchmarks well with peers as well. So Cangrejos, compared to other independent developers, is a long-life, low-cost asset. And if you go back and you look at page 14 again, you can see a lot of the high-capital cost projects or a lot of the blue projects to the left of Cangrejos, a lot of those projects are looking at quite a bit higher initial capital to operate.

Matthew Gordon: Yes. Again help us understand this a bit better. So this all have been based off a PEA, which is a very, well, includes in the name, preliminary document. But in terms of the team’s experience of moving projects from PEA stage, you know the assumptions you’re making… Tell us why you’re confident of being able to get through to a point where someone would want to take this off your hands because the economics are delivered as you are forecasting them here.

Marshall Koval: If you look at our history with the Lumina Copper story – and that’s the best way to compare it – the first major project that we advanced and it’s a mine today is the Caserones mine in Chile and it’s a large upper Porphyry mine. We took the same approach, we went in and explored, tried to fully define it. We went ahead and de-risked the project and it was acquired by Pan Pacific. So the key to that was really good solid engineering exploration work. So that project was de-risked. And then we moved on, I was the CEO in Northern Copper and that project was acquired by Chinamin metals and Jiang Xi Copper and what we did there is we did a PEA, real solid engineering work and we were at the pre-feasibility stage and it was acquired for $550M roughly. Then we were involved in the religio project which is a project today in Chile and that project, we had a resource estimate, we were still doing exploration drilling, very similar to where we’re at with the Cangrejos project and check acquired that Project. And it’s in the development pipeline today and when tech required and they did a lot more exploration work and it’s a much larger project. Now the ultimate one that we sold was talk and talk. The first quantum. And that project we did at the PEA level. We took major risk areas like the pre-strip, metallurgy, water and we advanced that word to a pre-feasibility level and First Quantum acquired the project and that’s next in their Q after coming into Panama. So that’s going to move into the development scenario. So I think as far as an exit goes, basically the level of work that’s being done now should give most companies comfort that this project can move forward and be economic in the future. And obviously, a lot of that depends on the Gold price, Copper price environment. But there’s very few projects out there with this sort of scale, particularly ones that are in independent developers’ hands. So I think that the potential for a major or mid-tier to come in, probably before we even complete the pre-feasibility study exists, and then, ultimately, if we have to continue to move towards pre-feasibility study, we’re doing all the work right now to continue to advance the project.

Matthew Gordon: Okay. So I’m hearing it’s a large project. We’ve seen it before, we’ve done it before and we’ve delivered for investors before.

Marshall Koval: Exactly. Exactly. And I think just to highlight that in the Lumina Copper scenario, we raised about a $175M and returned about $1.5B to shareholders and, I guess, maybe the best way to look at that is if you flip over to Slide number 17. You can see the tombstones for all the different companies that have been part of the Lumina Group and the senior management team and Ross have been involved in all these companies and that’s been our business plan, our model and we’ve been very successful at it. And very few companies have done that. I guess on another note, the Enfield Gold asset that’s shown there, that was merged with track and with Newcastle to form Equinox Gold, where Ross is the chairman. So we have a long history, we have access to capital, we have the ability to execute tactically, and we have the wherewithal socially, environmentally to navigate difficult jurisdictions and Ecuador is evolving in a really positive way. And we feel that we’ll be successful in Ecuador as well with Lumina Gold.

Matthew Gordon: Yeah. We heard the Equinox story earlier this month. Great story there. Do you think that the Ross Beaty factor always helps, because you said it just now. You feel confident about being able to go and raise capital for the next stage. So on the money front, you’ve got $14M in the bank. Now you’re going, what are you going to deliver in 2019 with your cash?

Marshall Koval: Basically that cash gets us through the year and the bulk of the money is going into the ground in Ecuador right now, related to the drilling programs, the engineering work, the metallurgical work. All of that is where the majority of that money is going. We run a pretty thin corporate overhead. So most of the money is in the ground and it’s going towards de-risking and further understanding the extent of the project, particularly understanding the new Gran Bestia area where it could be a project changer from the PEA.

Matthew Gordon: Right. And are you raising any more capital this year or you’re good?

Marshall Koval: We don’t anticipate it at this point, no. Basically if you look at the history of the Lumina Group, we’ve just got six holes into Gran Bestia. Newmont drilled five holes. We just finished a hole that was some 800m deep and we had mineralization through it and we’re in the process of really getting into the Gran Bestia area. Now if we continue to have good success there, we may bring more drill rigs in. And that’s the history. If you look at the talk and talk project, we started with one drill rig and ultimately ended up with 10 drill rigs. So that’s the only thing, continued success there that could change the spend for the year. And if that happened, we would evaluate where we the set cash flies, and determine if we need to go back to the market.

Matthew Gordon: Marshall, our investors want to know how you’re going to make them money. How can you answer that question?

Marshall Koval: Yeah I think basically one of the main ways to look at that is, we still haven’t discovered the full scale of this project and I think what I want to do is direct you over to Slide number 10 in the deck. And I think this really shows you the upside here, which isn’t realised in the market at this point. And basically if you look at the right side of Slide Number 10, that is the Cangrejos deposit. And basically what you see on this slide is, the pinkish colour is all of the Gold equivalent grades between 0.35g and 0.85g. That’s all above the cutoff grade that would go into the mine plan in the PEA. And then the hot red colour there is over 0.8g per Gold equivalent. And what you can see in this slide is that there’s a significant deposit in the Cangrejos deposit at the right, where the majority of those drill holes are. And about a kilometre to the left of that is the Gran Bestia project. And basically what you see there is five of the Newmont holes and two of our holes. Subsequently we drilled four more holes and this thing is holding together.  What we don’t know is if this is a true satellite deposit, if the two deposits are connected and are one deposit. So if you look at that slide, there’s this red outcrop at the surface which is 4.8g/t Gold and 2.3g/t Silver. Basically, there’s some other intercepts around 10g and this is all at the surface, on the very edge of that which is that grey outline. And if these two things are connected and we’re going to drill in between, we’re going to fully understand the size of Gran Bestia, which looks large at this point. If these two things are connected you’ve got a really large pit, which would totally change the scale and the economics of the project. So as we have it right now and the PEA, just the deposit at Cangrejos on the right is included in the PEA. Everything to the left at Gran Bestia is not, so that’s going to be new resources added. And if the two are connected, it’s a substantially larger deposit. So there’s upside on the scale of the project. The number of Gold ounces.

Matthew Gordon: And potentially the grades are… they seem higher at the surface, why is that?

Marshall Koval: The outcrop on the surface that could be a little bit of secondary enrichment from the oxide near the surface. But we do have good Gold grades. For instance the best Gran Bestia  Gold grade was, I believe was hole number 99, was 208m of 0.91g/t Gold and 1.16g/t Copper right from the surface. So like I said earlier we’re looking to see if Gran Bestia will be a higher grade near surface starter pit or if it’ll just add resources to the mine life for the project, so there’s some real upside in the scale of Gold ounces that could potentially be discovered here. So that’s a big upside for investors.

Matthew Gordon: Thanks for pointing that out. And do you think there’s any, I mean, what else do you think the company is going to be able to do this year to, again, just drive that market cap, drive the share price. How are you promoting this for instance?

Marshall Koval: Yeah, you know, it’s kind of been a story that for quite a while we’ve sort of been flying under the radar. We were consolidating our land position in the district. Now we control 100% of the known mineralization at Cangrejos and Gran Bestia. And really until we put out the PEA last year we were pretty quiet. We had some press releases on it. Now we understand the scale of this thing is real. And we’re more active getting information out to the public, generating more of a project definition and I think there’s a couple other aspects of the project that are really positive. If you look at a lot of candy and Copper and Gold project they’re high elevation in Peru and Chile. Cangrejos, the highest point on the projects is 1,300m, we’re 40km from a deep water port where you could export concentrates. We’re looking at developing a couple of different concentrates – a Gold concentrate, that could go to Europe or the US, and then a Copper concentrate with Gold and that can go to China. So the transportation operating costs, related to the proximity, the infrastructure, the low strip ratio that I mentioned earlier, all bode well for the project. And so I think it sets itself apart from other Andean projects because of the proximity to this good infrastructure, low elevation and it is a high-rainfall area and that can all be managed. But if I look at the project layout, we’re doing some other things also, on page number 12 there. We’ve got the open pit. You can see in the upper right-hand side, it goes to primary crusher down the plant and we’re looking at Dry Stack Tailings Facility. And basically that’s really positive from a water-management perspective and environmental perspective. There’s been a lot of issues out there with tailings failures, particularly in Brazil. So there’s a lot of scrutiny raised to that. And the other thing too at the PEA, it anticipates no use of Cyanide in the project. So from a permitting and environmental perspective the PEA project plan looks pretty positive in that regard. Now we’ll continue to evaluate whether we know what the process flow sheet is going forward. But things look good for the project in that context.

Matthew Gordon: Perfect. Well thanks for running through some of the technical aspects there. What are the top five reasons why we should invest into your company?

Marshall Koval: The team has a track record of success. It’s backed by Ross Beatty and several long-term investors that have been with us through the Lumina Copper story. We have an amazing asset in Cangrejos. It still has the potential to grow significantly, we’re exploring it now. We have access to capital to execute and de-risk this project and put it in the position that a major and mid-tiered company can move it forward. We’ve been there, we’ve done this. I mean, we’ve had high-returns for investors in the past. The Lumina Copper story, which is the same group here, raised about $175M to return $1.5Bn to shareholders. We think that the opportunity for large returns to shareholders still exist in this story.

Matthew Gordon: Okay well that’s great. That’s our first time hearing the story, we’d love to catch up with you in the next couple of months and sort of see how things progress with the drilling.

Marshall Koval: Okay. Appreciate it Matthew. Thank you.

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Sabina Gold (TSX: SBB) – Shovel Ready, NPV $760M, with $50M Cash In-Hand, 24-30% IRR (Transcript)

We interviewed Bruce McLeod, CEO of Sabina Gold & Silver to discuss their activities of 2018 and what their plans are for 2019. They are showing some robust economics with a district wide project. Their initial resource is 7.2Moz @6g/t. With $50M in cash in the bank and their permits, see what Bruce has to say.

Click here to watch the interview.

Matthew Gordon: Good morning Bruce. How are you?

Bruce McLeod: I’m very well thank you.

Matthew Gordon: Fantastic, thanks for joining us. I know it’s early. So Bruce, we’ve heard your story before but we wanted to kind of get into a little bit of detail about some of the players on your team. Maybe I’m a little bit more about you so can you tell us about yourself, where you come from, your background, your relevant experience?

Bruce McLeod: I’m third generation in the mining business. I grew up in the business. My father was a was a successful developer. And before that my grandfather, a miner, and felt that there was actually.. it was more lucrative to sell beer to miners than it wants to be a miner. So we’ll call two and a half generations. Mining engineer have worked on three continents. And a number of very successful mines, including building them in to a mine, North of 60, in the Yukon, permafrost, 40 below. Logistically challenged. So a lot of relevant experience to a project like Sabina’s. But I think what really helps us Sabina and probably gives us even far more knowledge base than we did with Minto and Sherwood, is I’ve got a board that has significant experience too. My chairman is Walter Segsworth. Walter was the chairman of Cumberland, which is now Agnico’s Meadowbank Mine. And before that was the CEO of Westmin and the CEO Homestate, which ran the largest banded iron formation in the world, with the Lead Mine in the Dakotas. With that we also have a new addition which is Rick House. He’s the CEO of Dundee Precious Metals, which is a 10% shareholder of ours. He worked at Polaris which is the most Northern Canadian mine ever, for a number of years as the senior management. It makes Sabina in Southwestern Nunavut actually look logistically simple. And a lot of it because that was a base metal mine that also had to deal with shipping out concentrates, where we airfreight our bullion. On top of that significant financial permitting operating experience and corporate governance. So I think really, we’ve developed a team that we believe is best in class for a projects such as ours.

Matthew Gordon: Right I know and some of the pieces that you’ve done in the press, you talk about do you risking the project, perhaps of something we can come onto and a little bit more detail in a moment, but first I want to ask you, how do you think you did in 2018. If we were doing a report card, what would you say?

Bruce MacLeod: We knocked it out of the park in 2018 for everything except for the most important one, and that’s equity price. If we look at the objectives that we had. 1. It was our permanent we got both our Taipei and our type B water license so we’re now fully licensed and permitted to to the next level. 2. After that was our deal with that could take me out Inuit Association and that was a 20yr term deal that we completed. So that now gives a social licence to move the project forward. 3. Also did a great job of building up the infrastructure logistics, which is one of the challenges on this project. Built are our port facilities replayed our facility on time and on budget. 4. We now have the potential to continue to grow this already large high-grade Resource. But we’re also in a challenging equity market and we underperformed compared to our peers. So even though that we did I think a very good job in our deliverables from an equity shareholder perspective. I think that’s what we have to do better.

Matthew Gordon: So what do you think went wrong? When you say in relation to your peers. What were they doing that you weren’t?

Bruce MacLeod: Well I think what many of them were doing that we weren’t, is some of our peers were already fully financed. We weren’t. And I think you don’t get a weak equity market. People are fearful that you’re going to hit the equity market at the wrong time and an opportune time hitting the market with a very significant financing for production, probably cause people fear that you know there was significant dilution coming, in a market that quite frankly wouldn’t be able to absorb it or finance it. I think that’s probably the first and foremost thing. And look we did a deal with the Joajin in December, closed it in January 18. And Joajin brought significant dollars almost $70M for 9.9% to the company, giving us.. doing it a very significant premium. And I think what the market sensed, is even though the market was weak that we were going to go ahead. And I don’t think anything could be further from the truth, in that, we are very cognisant of the capital structure of the company. That doesn’t mean that we won’t continue to do small financings to add value. But I think we feel that we need the timing to be better, for us to move the project into that ultimate phase. But that does risking phase that we have to do what I think will save us dilution, because what it will do is reduce our cost of capital on this project.

Matthew Gordon: Right. I think we’ll come back to this again and in a moment. But I think the other thing is noticeable is your getting out into the market more than you did last year. You know we’ve seen you in several interviews. Would you say that’s a fair comment?

Bruce McLeod: I wouldn’t say we’ve done it more. I think maybe we’re probably a higher profile company than we were a year ago now. Now permitted first world jurisdiction. Very few empirical, very few companies that actually have been through this long process of Canada, U.S., first world.. that can say that we’re shovel ready. So I think what happened is we probably have more eyes on us because we’re in a very small group of peers.

Matthew Gordon: Okay. So just to finish off on the 2018 report. Is there anything that you would have done differently. You say you’ve knocked it out of the park. But looking back what would you have done differently.

Bruce McLeod: You know I don’t think there’s anything that we could have done differently. You know.. the not taking a significant equity contribution would put us in a position that we’d probably have to do it in a weaker market later in the year. I think that focusing on expiration still is something that we feel is important. It’s one of the few things that you can actually look at our equity performance and when we deliver exploration results, see that there’s a response. That’s positive.

Matthew Gordon: Okay. So let’s look forward for a minute. You’ve got some pretty impressive shareholders, Dundee precious metals and also Joajin. What are they asking of you for 2019, 2020. What are you asking of yourselves?

Bruce McLeod: Well I think we again are in a market right now that people are  fearful of doing a large equity offering to advance the project construction and production. One of the things about working in the area that we are is, is there is more inherent risk. But we also have more inherent reward because of the size of our Resources the grade of our Resources. Remember these are the highest-grade undeveloped open pits in the world. If we look at other peers and Nunavit, we’re up to double the grade of a very successful mines and in today’s today’s times. But the risk and when it comes to logistics and infrastructure risk, and perceived capital risk to the projects, those are things that when we’re looking at financiers, we’re looking at debt packages, we’re looking at equity offerings, is people are afraid that the infrastructure and logistics will cost more to overcome. And they’re fearful that our capital costs will be significantly higher than we estimated.

Matthew Gordon: But that’s your role as CEO. Know you’re managing risk every day. So if we look at some of the things that you’ve been doing and you’re going to be doing this year, I mean what can you tell us a little bit more about that, over and above the capital risk component.

Bruce McLeod: Well the capital risk component is a big part of it. So I’ll touch on that is that what we have done with our Feasibility Study is brought it beyond that and basic engineering and well done detailed engineering. So getting you know rather than an estimate which is a Feasibility, even a Bankable Feasibility is still an estimate. It is getting supplier quotes, getting them refreshed, but instead of the method of delivery, which was EPCM, which is timing materials, cost plus, is we are going down the path of an EPC or fixed price bid for the physical. The engineering construction firm that say look we will actually build this to the specification, and with performance guarantee which gives our shareholders more risk to operational readiness. And we can put some more firm square brackets on those cost numbers. The second part is the logistics infrastructure is, although we’ve built the port facility, we have operated other than a toll road. A cat train between the mine and the port facility, we’re in the late stages of building that winter ice road between those two, and showing how we can operate that in the long-term through construction and operation.

Matthew Gordon: I’ve seen a piece that you did recently where you’re talking about looking at debt financing v equity and obviously you think the equity that is a bit rich at the moment. So you’re putting out the first pour to 2022, I think is the thing is what you said. So you’ve obviously run the economics on that and said that it just doesn’t make sense. Are you going to continually monitor that situation between now and then or is that that’s the date set in stone.

Bruce McLeod: You know because of the seasonality of shipping to the North, winter ice roads, it’s binary. You know we’re now at the stage that even if we had all the money sitting in a bank account, ready to go, we could not do Q421, without adding significantly more risk of trying to compress that schedule. So we have to deal with the seasonality and it was a decision that we looked at. We didn’t take lightly. With that being said, is the vast majority of our shareholders were relieved that we pushed those rather than trying to force the equity issue and in a market that frankly isn’t being supported.

Matthew Gordon: That’s understood. So like a couple of easy questions for you here. Give me five reasons why investors new investors and should be investing into Sabina.

Bruce McLeod: Well the first is its a world class goal project with extremely robust economics. Our feasibility was completed in $1,150 Gold versus today, high $1,200’s – low for $1,300. And and we’re much more favourable Canadian to US Dollar than our Feasibility. And at $1,150 that have an after tax IRR of over 24% at today’s spot Gold / spot exchange that’s well over 30%, manageable pre-production capital, high annual production. But it’s also a district we’ve been working on 8km of this 80km belt. We have another 2Moz, a million of that in Inferred, sitting 50km away at the George project. We haven’t set foot on that since I’ve been with this company. So we have that low risk conversion opportunities, blue sky, greenfield and brownfield opportunities. It’s also a significantly de-risked project in the first world, is that we are now fully permitted. We have some licenses to complete, but those aren’t part of a public review process. Those are show the engineering design and how you can meet the standards and you will receive. And we’ve got a company with Executive on a board that have a track record of success. So I think I might be more than 5 but I think that is really the rationale behind being a shareholder..

Matthew Gordon: So I’m just gonna ask you a few questions which are circulating the market and perhaps something that you want to address as well. So let’s start off with the project itself. Obviously you’ve got a district, it’s not an asset, as I as a district. So talk us through some the numbers. Your market caps around sort of $390M today, as we as we talk. How much did you pay for these assets and what did you inherit?

Bruce McLeod: It was $7M in cash and the 17 million shares of Sabina at the time that we paid to acquire these. And at the time, it was a 2Moz Resources. A lot of that Inferred. No current economic analysis. And frankly just too small a Resources to move forward given the cost to overcome logistics infrastructure. And so we spent significant dollars, and that would be close to $300M on on advancing this project. Today we have over 500,000m of core drilled into the Back River district. So what we have ended up with is 5.2Moz in Measured and Indicated, another 2Moz of Inferred at over 6g/t. So you know high-grade. All of these deposits are still open. And what we have shown in the last three years, since we’ve done our last Resources update, that we’ve made the three new discoveries that are outside of our current economics analysis.

Matthew Gordon: Right. So in terms of dollars spent do feel that you’ve got the value today is a reflection of the time, the value, the numbers that you’ve created?

Bruce McLeod: No. Today you have permitted developers like us trading at historic lows. Is and again we’re not alone. But trading at this point four times NAV and you can’t recreate this kind of value without risk. So if we look at a grassroots project that is going to be typical, in building up the Resources building up your understanding of the economics of the project, going through the permitting. To recreate that today it would cost significantly more than what we have put into the ground and Back River. So you know I think today, we’re trading at a discount with many of our peers and it’s this developer group that I think offers some of the best opportunities in the marketplace, because the exploration risk is behind, the permitting risk is behind, the Feasibility risk is behind and now it’s execution and delivery risk, which again is used to manage that exploration risk by a big margin.

Matthew Gordon: Right but as a public company, you are measured by one number at that’s the share price. You had peaks last year of $1.82. You’re down at $1.32 / $1.35. You’ve had a bit of a knock there but what would you say to new investors looking at Sabina now?

Bruce McLeod: It’s a far better company than it was when we were trading at a 52 week high. It’s not a Gold price environment. It’s an investor sentiment environment. You know today again, why did we use the $1,150 for a Feasibility because we could to show the economics of the project work. And the sensitivities in that study so you can look at the economics in today’s price to have a project that doesn’t need a higher commodity price, doesn’t need a better exchange, foreign exchange ratio, and to have these important catalysts are behind us, but also having the catalysts in front of us. I think it’s just a far better company than it was when it was trading at 50% higher than it is today.

Matthew Gordon: Well obviously, you’ve done a lot in terms of permitting and drilling. You’ve got data. You’ve got a lot of de-risked factors. I get that. But what what are the things that you think are going to happen this year, which is going to give the stock a bump? So that’s what investors are looking for. You know there’s lots of choice out there. So what are you gonna do?

Bruce McLeod: Well the first is try and derisk the project to the point that we have as much confidence as we can have a capital costs, and logistics and infrastructure. But the other part of it which is very important is continue exploration. We’ve made a very important discovery hole was almost 12g/t of just under 40m. That’s a once in a lifetime for many people in the Gold business and haven’t followed up on it and chased it not only up dip down deep. We’re going to continue on on following that zone up and get to the point that for a follow up summer program that so we can put together a Resource, and use that as a as a leap frog into additional economics on this project.

Matthew Gordon: That cost money. It takes time and time’s money. So how much cash have you got today and where’s that taking through to?

Bruce McLeod: Well we started this year with CAD$50M. We will end the year without any additional financings in that neighbourhood of $10M to $20M. What we’ve done is our budget is we’ve actually put in some civil works and some optional programs that we may or may not do it. And it really is going to depend on on investor sentiment and whether we think that we have line of sight on that larger financing. And again it’s going to be based on investor sentiment. There’s no use advancing some of those construction activities unless we see there’s an appetite for actually paying for those in the marketplace.

Matthew Gordon: Okay. Okay. So you’ve got enough cash to get you through to where you need be. And I’m guessing a lot of that money is going in the ground. Not a lot a lot of overhead in your business. I mean the burn rate is…

Bruce McLeod: Our burn rate is relatively low. If you know we do have payments now that we have our agreement with a particular Inuit association that are not insignificant, but again with our capital structure aren’t are certainly going to break the bank. But the vast majority of our dollars have always gone into the ground. We try and maintain a period in operation otherwise.

Matthew Gordon: Let’s look at some of the shareholders here. Obviously you’ve got a lot of Chinese group sitting on just I think just under 10% . What’s the plan in terms of working with them or for the business.

Bruce McLeod: Joajin is the China’s fifth largest Gold producer. They actually found us. And that was a deal that took 23mths from first introduction until closing. And what we liked about their philosophy is they take long term approach. They recognised the district potential Back River. They believe that this isn’t a 2Moz initial project that this is a much larger multi-generational asset. And they liked management. They liked our ability to work in the environment that we’ve decided to focus on. And they felt that long term they could derive good value for their actual shareholders, by making an investment in Sabina. And providing some additional assistance to us, is they’re very good underground miners. They have a deposit that they’re developing that has some very close similarities to Back River. So not only do we get financial assistance, but also some technical assistance and with a big brother.

Matthew Gordon: But what does that say to the marketplace? Are saying that you’re in bed with Joajin now, and that’s going to limit your ability to sell elsewhere. Because I know you did… you were quite careful about the wording of that agreement. They have the ability to take more, but you know you’ve got to optimise for shareholders.

Bruce McLeod: So they own 9.9% which is certainly not a blocking interest. They have the to go 19.9% which people start worrying about is that a blocking interest. But we also received a 4yr standstill on a 4yr building trust where they couldn’t make a bid for the company, and more importantly with the building trust, if somebody else makes a bid for the company, they cannot vote, simply vote no. They have to either vote with management or provide a superior proposal. They cannot just block. So if people are worried about not getting the best value. You know I think that agreement actually puts in writing the mechanism that we will achieve best value for shareholders. If that M&A was to happen. Now the reality is is I don’t think anybody wants to see a transaction at the bottom of the market, particularly with some of the objectives that we have for delivery in the next two years.

Matthew Gordon: Yeah I mean you’re sitting on a global reserve of about 7.2Moz at the moment. High-grades over 6g/t. You’ve, obviously with the open pit is looking good, the strip ratios are not bad. Metallurgical risk seems reasonable. How big do you need to get before you start looking at offers or people start making offers? I mean this is already a big, big project.

Bruce McLeod: It’s not big. It’s valuation. At what valuation would you be at? At the end of the day is, look if you look at my track record I have no problem building and operating. I also have no problem. selling at the right time. It’s how to maximise value. And I think it’s human nature that people would rather.. whether it be a shareholder taking risk with us moving it forward, or our management team taking risks and moving it forward. I think it’s human nature that would you rather do a lot of work for more, or a lot less work for slightly less. Timing is everything in this business. And we have essentially seen capital a lack of reinvestment in the sector. And although in 2015, 2016, we saw a bit of a about an upwards blips. We’re still in a poor precious metal equity environment. I don’t think that it would serve any of our shareholders, particularly long standing ones that have been with this company for a decade as we backs this project too, for us to try to move a sale process at the bottom of the market. So you know what we are able to do and again the reason that we have the management team the board the executive, the employees, is we that we’ve developed a team that to maximise value and build this and operate this. But it doesn’t mean we’re going to be close minded. At the right time, at the right valuation, to an alternative transaction.

Matthew Gordon: OK you’ve got the right team there, but the is markets the market, so let’s move forward. End of 2019, beginning in 2020. You spent your money, share prices the same, what do you do?

Bruce McLeod: Well again, where we do have a benefit is to having large strategic shareholders that have a long time horizon. It enables us to move projects forward where others can’t. And we also are an environment that there are so few assets that are at this stage, that it is certainly far easier for us to raise capital than many of those grassroots, early stage projects. And especially with a larger market cap of where we are, of $300M to try and move it to go forward with $20M to $30M a year until the timing is right this is not something that would be the worst thing, rather than again trying to effect a sale process at the bottom, because the lack of financial capability that’s your only option.

Matthew Gordon: Okay. So let’s look at some of the basic numbers here. Your NPV looks okay. Your IRR is Okay. I mean what are there other numbers that people should be focused on in terms of understanding what the opportunity here is with Sabina?

Bruce McLeod: I would say they’re better than okay. If we again look at the headline numbers our feasibility, which a lot of people especially, a lot of retail investors look at that and don’t take a look at the sensitivity. So even though at $1,150 Gold with an $0.80, it’s at 24.2% after tax IRR, at today is spot on spot, it is over 30%. And if we look at the NPV, it’s over $760M, I believe. So I would I would say it’s very good, particularly in relation for market cap. You know you have to look at least at those in current prices. So that alone is looking at a developer that in a normalised market will trade off 0.75 NAV, there’s a rerating alone without us doing anything, waiting for the marketplace. But with that being said you want to be able first mover advantage. You want to be able to take the most attractive equity offerings, you have to be able to move this project forward at the right time. It’s being ready when that market does change to be able to take a bet.

Matthew Gordon: Okay. So again looking looking at the market. I think the general consensus is it’s picking up not, particularly fast but it’s picking up, and it may continue. If it doesn’t obviously the short the short term upside here is restricted somewhat. I think long term, I think you’ve argued a pretty good case that there’s a lot of upside in the long term. What could you do to affect any of this short-term upside that new investors might be looking for. Is there M&A on the horizon? I know you’re a district wide asset, but is that a consideration.

Bruce McLeod: Look it’s always a consideration. I don’t think at the end of the day we’re stewards of the company and the shareholders companies. If a compelling offer is made I think that we have to bring that to shareholders. But what I think we can do is even in difficult markets, remember we’ve been a company that has been able to, since 2011, move this project forward every single year. So we’ve been able to again get through a permitting process, both metallurgy and permitting, in this business tend to be… people give you full credit for it until you fail. So we’ve been through some of those higher-risk activities already. I think that the reality is if we get any cheaper, we probably won’t be around because somebody will take advantage of that. But continue moving it forward, continuing showing that as a management team, that we have better ideas on how to reduce capital, how to reduce risk, how to grow the Resources. But we don’t have that binary risk now of permitting, of putting a Resources together, getting a feasibility together. Again all of that behind us in a first world wonderful jurisdiction. The upside opportunity if we continue to see this this better interest in the Gold sector, I think is is a tremendous opportunity. And if we look at the macro factors today, I think for investing in Gold is probably never been better.

Matthew Gordon: Okay. So just it just kind of finish off here. You know you said earlier you haven’t performed as well as your peers for a variety of reasons. So new investors looking at you why Sabina? Why not your peers?

Bruce McLeod: Well look, a lot of its jurisdiction. If we take a look at some of our peers that are out there that are that are down the development path, they’re certainly not in jurisdictions that compare to Canada. You know everybody in this business whether it’s you’re investing a Sabina or any of our peers, has to take commodity price risk. But why take the country risk on top of that? Why take additional permitting risk? Why take additional risk on the n the technical factors behind it? A Resources size on growth. Because of our jurisdiction, and because of the economics of this project, I think really it is one of the better global development investments that you can at.

Matthew Gordon: Bruce, thanks very much for your time. I know you’re busy. Great to catch up with you and understand the Sabina story in a little bit more depth. It would be lovely if we can catch up in the next couple of months and so see how you’re getting on.

Bruce McLeod: Sure. Great.

Matthew Gordon: Appreciate your time. Thanks again.

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GoGold Resources (TSX: GGD) – Long Track Record of Making Money for Shareholder (Transcript)

We interviewed GoGold CEO Bradley Langille to get an introduction to the company. The team has a long track record of building and selling companies, which cannot be understated – they are company builders. They are at the bottom of the cycle but they have the cash and a strong balance sheet, as well as ramping up their production. Hear what he has to say.

Click here to watch the interview.

Matthew Gordon: Hello Brad, how are you?

Brad Langille: Good. Very good.

Matthew Gordon: Fantastic. Where are you speaking to us from?

Brad Langille: I am speaking to you from Halifax Nova Scotia, Canada.

Matthew Gordon: Well thanks for taking the time out to tell us your story. We’ve been through the PowerPoint so I guess maybe just kick off for people new to the story. Give us a two-minute elevator pitch.

Brad Langille: Well the group and myself and the companies I’ve led over the last 25 years have all been based in Mexico. Our success has been on the technical side and very, very competent team in Mexico. We’ve had a lot of success in discovery. In Mexico, we have a good network of…in the business community, the government, in the mining sector. We’ve typically found projects that are a bit off the radar. Usually private individuals have owned these. We’ve been able to bring the capital markets to the projects. We finance equity over the last 15 years for our projects about a $1Bn including some very large loans as well through banks such as the Bank of Montreal Scotiabank in the hundreds of millions of dollars. Where currently I built 4 mines myself in my career. And strong technical team, strong finance team that we’re able to get these things done. So we’re currently one mine operating in this company GoGold and we’ve just done an acquisition of exploration development project in Polisco, Mexico.

Matthew Gordon: I mean your presentation doesn’t make a lot of the fact that you guys are deal makers, in the sense that, you buy assets, you sweat them, you sell them and you you’ve got a good track record of making money.

Brad Langille: You know we have. And obviously we’re in a cyclical industry. I mean… it goes up and down in the cycle and right now we’re pretty much at the bottom of the cycle, I believe. It’s been a long winter in the Resource business but I think we’re going to come out of this in the next 18-24 months now. Reminds me an awful lot of the first project that we had which was the Ocampo project and a company called Gammon Lake. And that one was started at the bottom of the cycle as well. It was literally started in the grouch in 1997 in 1999 went into that project we acquired it from private family we paid $15M for it and at the top of the cycle were $2.2Bn market cap. We built two mines there that the eventually the mind was sold to Carlos Slim for $75M0. Also the mid in the cycle, we bought another project called the Accubo project. We bought that for $20M from private family. We invested $45M in a shell right out of the gate with the Bank of Montreal. That was Mex Gold. It was sold three years later for $375M. That asset the Accubo asset ended up in the Endeavour Silver and sold to them after about another seven years of production for $250M. So we’ve been able to bring capital which is obviously very important this business. It’s a very capital-intensive business. And you combine that with a country that’s mining friendly. Expertise in the development of assets. And yes, we’ve been able to turn tens of millions into hundreds of millions, sometimes billions.

Matthew Gordon: There are cycles, some commodities come in and out of fashion. Sometimes it’s easy to raise capital than other times. In this case, for your project today, how are you playing this? How are you going to create value?

Brad Langille: I think as a non-technical, generalist, family office, high net worth… if you want some exposure to the sector, what you should be doing is looking for management teams. This is a business that’s very capital intensive. I see companies that are either all promotion, especially in the good part of the cycle, and maybe lacking in the experience in the technical depth. Or the other extremists that I see companies that are very, very technical but can ever put together the capital. So I think, with our group, what we’ve been able to do is combine that technical knowhow. By education with geologist, but really, I’ve spent a lot of my career in the capital markets raising money. So I have very strong technical team which I can talk their language I can understand what they’re doing, but I’m also able to go on the street to you know London New York and raise the capital. So I think when you can combine those two you have a winning common combination. You know the the mining sector from from my opinion for an investor you should have some exposure. I mean really in the Gold business and it is very cyclic right now the generalist market is booming. Who knows how long that will last. But this is almost insurance. When you know we’re inverse to the general market when the general market typically is down. That’s when the investor run for Gold. That’s when we typically do well. Right. I like to say you know our timing is perfect if you’re there all the time eventually it’s perfect. And what I mean by that is that this is this is what we do. We you know I’m not bothered by a whole bunch other public companies. I only ever do one public company and mining sector at a time, typically. And and we’re very, very focused on Resource.

Matthew Gordon: There’s a few things in there obviously that you’ve covered off so you know people can look at commodities, they can look at Gold, and you can argue the case of what type of Gold investment you should have. Equities, physical, ETF etc. But coming back to you. And yes people can be contrarian and so forth in terms of their investment strategies. But for you coming back to your company what what do you how are you going to play this? I mean how are you moving the company forward? Because if I look at your share price, it’s obviously down, as is everyone’s to be fair but you know you want to sort of see some uplift there before you even contemplate raising money to do anything else. So what what’s your plan for this year?

Brad Langille: The plan for this year. First of all. Perfect company for me in this market is a company that can generate cash, and then where do you redeploy that cash. So really in this business the value is created in the Exploration Development. or a lot of the value, in that phase Exploration Development to Production to Construction Production. So here in the goal for us right now, is first of all was to have Parral working well which it’s doing now. And we just had the best quarter ever. As far as production we just really said we see the quarter that we’re in right now. We better than last quarter where we’re targeting a number that’s 500,000oz. So that would be substantially, for one quarter 500,000oz Silver equivalent ounces, would be substantially better than we’ve ever done at the mine in the past. That will generate enough money obviously to pay all the expenses in the company, and generate money to deploy into our new Exploration development capital project. That’s where the. That’s how we’re going to play it. We’re gonna have Perral where we have developed an expertise in retreating these old tailings. These old mine waste. It’s not what you call a sexy mining project but it’s a cash generating mining project. So what do you do with that cash? So that’s the next phase. That’s a parallel track. We do what we’ve done in the past. We find these off the radar projects like Ocampo in Gammon, which we turn into billions. Or like our latest Los Ripos which is Exploration Development and it’s going to be developed to a stage, we feel when the market starts coming back which I think we’ll be the next 18 24 months, our ducks in a row. We have a district here where we’re doing basically the same thing that we did Ocampo. There was an old high grade mine where they took out the heart but they left behind what they would have considered non-economic back then. But today in an open pit bulk mining scenario. And that’s what we’re going to drill off first. That is potentially 2g/t material which is bonanza for us in an open pit. So we’re drilling that off. And then we have this property which has tons of potential over 35km of structure, where we’re going to make new discovery. So production so we don’t have to dilute the stock. A lot of the other juniors right now in the Exploration Development business and that’s where the real value is created, have to go in print shares to get capital. We don’t have to do that as you mentioned we have a strong balance sheet and starting to generate cash and mine. Redeploy that cash into the part of the business from our experience over the last twenty five years. That really generates the equity growth.

Matthew Gordon: A couple questions there. You talk about the market. You think the market is coming back the next 18-24 months. You’re under no illusion about what 2019 is. A lot of people have a very bullish about the price of Gold this year because of the political geo-political turmoil. You’re taking a slightly longer more pragmatic approach to this? Is that right?

Brad Langille: I am you know I and what I know is building mines and finding Gold. I don’t claim to be an expert on when the next up cycle is. That being said we’ve raised a lot of money over the last 15-20 years and we know a lot of these institutions. And every time I’m in a meeting with one of these institutions I ask them what they think. As a investor, especially the the mining focused investors, and what I’m hearing from them is 18-24 months that they think we’ll be firmly into the next up cycle. So I don’t think anybody can predict for sure when it will be but for us we’re in a good position. We’re a strong balance sheet, we’re a strong technical team. We have the assets in place that where we want in this particular one we’ve been followed for several years. So we’ll get all our ducks in a row. We think from the response from the investment community, the focus mining investment community, it’s gonna be 18-24 months. But today we’re at a market cap of $40M and we have our ducks in a row as I mentioned so we’re ready to go. So we’ll be there ready when the market comes back and I think we can even in this market we can generate some real returns here over the next 6-12 months with what we’re doing.

Matthew Gordon: You think investors looking at you should be looking at this as a two year, three year timeline summer. I’m just looking at your PowerPoint. You talk about how long you have assets for. You work them up to a point where you’re maximising their potential and their value and then you exit. That you’re not looking to create a kind of cash flow machine for the next 10-20 years. You get in and out when the value is there.

Brad Langille: Yeah I think you have to look at our track record and what we’ve done. But it’s important when you have an asset that you technically develop well, you created real value where the premium major mining companies like EnicoEagle are willing to pay you tens of millions or hundreds of millions of dollars. To do that, you have to do the work. But I’ll tell you something if you put the for sale sign on an asset, you’re not going to get the best price. You have to as part of your track record that you have the ability to build the mines and that you will build the mines. That you can put together the hundreds of millions of dollars to build the big mines. And then you’ll find that people want to pay. So that has always been our strategy. And we can build the mines. Ocampo was at 250,000oz producer and it was a large pit with a large deep Leach and a large underground mine. So. But I feel that the real value created for the shareholder is in our Los Ricos this project from where it is today or the next 24 months. I just want to point this out in a down cycle. You take the Sandafortutos project. That the project had been sitting there for years, in a little junior, trading at a $1.5M market cap. So in 2014 first we did a lot of due diligence, but six months of due diligence, on the project. We were able to acquire. Once we jumped in there, we got a lot of competition from some other juniors but we got it for $9M. We spent another $11M. We’re in for $20M three years later. We sold it for $80M. We retain a relative 2%. We’ve realized $12M on that royalty, half cash half shares. Those shares have gone up by about 70%. So even in the bottom of the market, we generated some value for the company. What can we do the value? We paid off all our debt. Now we have a minus generating cash and it’s debt free with cash on our balance sheet. My point is even in this down market I believe over the next 6-12 months, we’re going to generate some real value for our shareholders in what we’re doing.

Matthew Gordon: There’s some triggers that are potentially for investors to look for. Obviously you don’t put the for sale sign up. You just don’t do that if you want to maximize the potential of the offer. What are what are the other little triggers that.. the things, the signs that people should look for?

Brad Langille: I think you know when a company has to go to the market again it’s tough to be into the market right now.

Matthew Gordon: So cash is king!

Brad Langille: Cash is king for just one other point. Just what I mean they’re both you know throwing up the For Sale sign. It doesn’t really matter. The roadmap to building a mine or the roadmap to selling an asset is the same roadmap. So we just go into a project and we say we do the right systematic work towards building the mine. And if somebody comes they come. So that’s that’s what we do in the asset side. But for us right now it’s all about cash is king. Strong balance sheet, strong strong technical team. A country that we know extremely well. And the ability to move things forward.

Matthew Gordon: So lots of optionality when you’ve got cash! And just asset a generic one. How do you think you did in 2018 and what would you’ve done differently?

Brad Langille: In 2018 what we’ve done differently? We would’ve had Los Ricos  sooner. But we couldn’t drill that. We it was it was a process and it took as long as it took. In 2018, you know the end of 2017 we we sold our our asset Fortudos. We made a lot of money on it. But I’ll tell you what at that point we had a lot of debt. So the ability to move that asset gave us a strong footing. I think that I would say that our producing mine of all the four mines, I believe was probably the toughest. We did something new there. And sometimes is overlooked. We created some really new technology. We took these old tailings, we did something that nobody’s ever done before. We heap leach these tailings. So we do have that as well. It’s not a sexy mining project but there’s hundreds of millions of tons of these in Mexico. And nobody’s done that before. And we’ve developed the knowhow around that. So never never say never. We may do one of those again and just to generate more cash.

Matthew Gordon: And do you have the ability, one to identify additional assets and then option them because of your connections and the fact you’ve been working there for 25 odd years and is that part of the strategy going forward? I know it’s not right now but is that what you’re thinking?

Brad Langille: You see what opportunities come to you. We do have a lot of projects that come to us. We look at an awful lot of projects. I would say that we’re a very focused team though and really the focus right now is that Los Rico’s project. Maybe there’ll be some more consolidation around it but the focus is that project and we’ll keep the team very focused on that. You know there is some people have mentioned that you look at you know our where we trade the market as far as market cap. You look at some similar companies, you say we’re all trading at a 0.3x NAV, net asset value, is there is there money to be made in M&A? I think there’s far less money to be made in M&A than there is in what we’re doing right now. If we built a lot of a lot more market cap in the rest of the market is still really depressed, you know we could revisit that. Obviously we’ve been long and we’ve said this publicly we looked at a lot of M&A opportunities. I just think there’s way more money created in the development of this Los Ricos project.

Matthew Gordon: Can I ask then say this year I think you’ve sort of explained what you’re going to be… the process of kind of going through this year and probably next as well, so five reasons people should get interested in and believe in your operation and look at potentially investing in you as well.

Brad Langille: A few reasons why they should it is because 1. Is cycle. So cycle, we’re at the bottom of the cycle. And so there are other companies obviously at bottom the cycle as well. So what differentiates us. We have cash. We have a strong balance sheet. The last thing you want to be doing is going to the market raising equity at bottom in cycle. 2. Second thing is that we have a track record. We have generated literally billions of dollars of value over the last twenty five years in a country that we know very, very well. Well on the political governmental and mining business in Mexico. I think the other thing is that we look where we’re positioned right now besides a strong balance sheet we’re going to start generating cash. We have a mine that we’ve been mining now going on five years. It was a little bit difficult to start up, but it’s working really nicely now. You’re gonna see production growth over the next couple of quarters. So when you have production growth you have strong balance sheet and then we have Los Ricos. Now we’re back in our wheelhouse. Our wheelhouse is drilling like we did and Ocampo. We’re just drilling around an old high grade or sheet. That’s where we’re starting. That’s basically drilling for resource. But we have 35km  there and we have other targets that we’re starting to trench. We’re gonna have some news about some of those results. Those targets are going to be the Exploration Development, we hope we find ore shoots that have never been discovered before. And when you look at what was there and was mined in the 1920s, and you say what would it look like today with the heart still left. I mean it looks great sitting there as a bulk target. It’s going to be one of the hopefully real the high-grade that mines. But you say well what about finding one of those where nobody found it before and all the heart there. Then it’s going to be a real bonanza. So we have that opportunity. So I don’t know if a given five reasons. But I’ll tell you, it’s cash. It’s experience. Technical team, knowledge and we have the right project now. So those are gonna be the drivers. We’re gonna have a lot of news coming out over the next six months. And we have catalysts that are gonna drive that stock. We’ve been down for a while like everybody else but we’ve got the now we have the tools in the tool box here to really start greatness about.

Matthew Gordon: And just one thing…the team have got. How many shares do the management board hold?

Brad Langille: Well I’d be the second largest shareholder. So I’m about 10% of the company. Management and insiders have about 30% and then…we’ve had good, even in this market, we had some good institutional support and see some of our institutional shareholders there as well.

Matthew Gordon: Are you primarily focused on institutional capital coming through when you when you need it or do you look at the retail to drive that kind of liquidity and volume component?

Brad Langille: You know I think really this market is going to… the up cycle is going to start with some retail interest first. I think we need to work and generate some more retail following our company. Traditionally, we’ve had a lot of institutional support. Right where we are in the market, it seems that a lot of the institutions have gone away. But I think that will change over the next 18 months. So we’re out there where we were… now we have something to talk about with this new project and the mines working well and the balance sheet. So we’re out there on the road and we’re telling our story and it’s a really good story. So I think we’ll get some interest.

Matthew Gordon: Fantastic Brad. Thanks for your time. I’ve enjoyed listening to the story and I wish you well.

Brad Langille: Thank you.

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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.

Aldebaran Resources (TSX-V: ALDE) – One of the Very Few Large-Scale Projects Left (Transcript)

Spun out from Regulus Resources (TSX-V: REG), Aldebaran Resources has a large Gold / Copper project in Argentina. CEO John Black talked us through the company, their project and how they aren’t many large-scale projects left. They currently have $12M in cash and they are exploring higher-grade zones to support their lower-grade bulk play.

Click here to watch the interview.

Matthew Gordon: Hi John, how are you?

John Black: Doing well, thank you.

Matthew Gordon: We spoke recently about Regulus, one of your projects in Peru. This is a spin out. So why don’t you do you give us a couple of minutes on why you did that and what you think you’ve got here.

John Black: Okay. Our team is a group that’s been together, this is actually our third company on this. Our first company was Antares Minerals where we discovered a large Porphyry, drilled out and sold it to First Quantum. We spun Regulus out of that. And fortunately, have landed on another very exciting Copper Gold project called AntaKori and Regulus. But in the meantime, we had some assets in Argentina that we’d parked while we focused on AntaKori. And with the increasingly attractive investment environment in Argentina, we realised that those projects were sitting there, there wasn’t much going on. And we explored the possibility of spinning out a new company. And when we looked at that we felt we needed a stronger project in the mix in there. And a project we’ve been watching for quite a number of years called the Altar Project, a large Copper Gold Porphyry system. It was held by Stillwater Mining and it was not a very good match for them. And we determined that it probably wasn’t a core asset and we monitored that project and looked for the opportunity to acquire it. So when that came up and we signed an agreement with Sibanye who had recently acquired Stillwater, to acquire Altar, we had that extra piece we needed. So Aldebaran spun out from Regulus Resources based on projects we have in the Salta Province, in the northwest corner of Argentina. And with a very important addition of the option to acquire up to 80% of the Altar Copper Gold project in central Argentina, in the province of San Juan.

Matthew Gordon: How do you apportion, allocate time between the different projects that you’ve got going at the moment?

John Black: One of the interesting challenges when we saw the opportunity to put our hands on Altar, we felt that we needed to do it. These types of projects are very hard to find.

Matthew Gordon: These projects being what? In what sense?

John Black: Well these these large Copper opportunities. Ourselves and a number of other groups, Ross Beatty’s Lumina Copper group, some of the Lundin groups, have done a very good job of identifying these opportunities. Drilling them out, showing that they’re economically viable and sound of major mining companies. But we’ve done such a good job that were starting to clear the shelves. There aren’t many more of these left. Our principal shareholder Route One has been encouraging us in indicating that they will back us to put our hands on these opportunities when they’re out there. So when Altar emerged and we saw we could get it at very attractive terms, we decided it was best to capture that deposit and form a second company on it. We’re very conscious that it  stretches management. The same management to run two companies. So what we’re doing right now is, our backers Route One and others, want to see us involved in both companies. They like the style we work. They’re betting on us as a team as much as they’re betting on the projects we source on this. And so what we’re doing is strengthening our bench by adding additional senior management to allow us to have a stronger group and more people available and those people to be able to work between the two companies.

Matthew Gordon: Right. Okay. And talking of Route One, they are nearly 50% holders in this project. I guess that’s a factor of the amount of capital that went in initially. You’ve spent about $5M this year on drilling. You’ve got somewhere in the region of $12M left in cash. Will you be needing to go to the market soon and will that allow you to actually get some more retail in there?

John Black: Yeah. The way this opportunity emerged required some significant upfront capital to acquire the project. So it’s $15M in cash payments to initiate the project. So we raised $30M US, almost entirely provided by Route One, to get us started. So that resulted in them having a large substantial position in the company. Sibayne has a 19.9% interest in the company as well, as part of the way we formed the agreement. And senior management has approximately 18%. So this this one is a very tight vehicle. We will need to acquire additional funding as we move forward. We anticipate that much of that will come from the large existing shareholders. But there will also be room for new shareholders to come in on this story as it develops and emerges.

Matthew Gordon: That would be great. Well I think that would be good for the company as well in terms of driving the share price up, get a bit more floating stock out there. Okay. That’s fantastic. So tell me a little bit about what the endgame is here. I guess it’s going to be similar to Regulus but the potential here is a little bit larger in fact, isn’t it?

John Black: Yeah really the type of companies that we’ve chosen to run, is when when you start a junior company you have to kind of look at where your niche fits best on this. And based on our experience and our access to large projects, what we’ve decided to run, both, originally with Antares, then with Regulus now, as well as with Aldebaran, is where we identify a large project that we believe that with additional drilling we can show the full size of the project. And then addition Feasibility level activities, we can de-risk the project and show the best economic pathway forward on it. So on our discovery with Antares, then the AnataKori discovery that we have going with Regulus, those are both situations where we identified projects early that had some Resource but we believed had potential to grow substantially larger, and they are. And those will play out that way. Aldebaran is a little bit different in that there’s over 100,000m of drilling. There’s over 2.5Bt of Resource identified right now. But the way that previous operators chose to present that was by bulking it out at a very low-grade. And so they show an extremely large deposit at low-grade. But what caught our eye on this is that we see distinct higher-grade zones within this, and that’s what we’re actively exploring through a 5,000m drill program this year, as well as extensive re-logging of the existing data to see if we can better define those higher-grade zones. And perhaps optimise a project around an initial higher-grade activity to get a project generated, but still not losing all that lower-grade material that surrounds it.

Matthew Gordon: I’m looking at page 13 of your PowerPoint. You put yourself in there with some pretty big names, either side of you, in terms of your Resource size… we’re in the billions of pounds here. That’s obviously very attractive if you’ve got the money to develop that. And you feel that with your current shareholders you’re going to be given the runway to do that?

John Black: Well really what we tried to do, the niche that we are best set to do ourselves on this, is from that stage of discovery, through approximately to Pre-feasibility Stage (PFS). So what we do is we try to show the size of deposit and then show the best way to develop that project going forward. And then ideally if we’re on the right project, and if we’re at the right moment in the market, we end up having an opportunity that’s presented that is very attractive to a major company. Major companies are increasingly not having much success with their own exploration teams on this. These are very hard projects to find. And they find narrow windows when they’re in situations where they’re able to acquire new deposits or even motivated by their shareholders. It’s ironically, typically when metal prices are high and they have a lot of cash flow that they want to go out and acquire projects. So ideal scenario for us is that we drill a project like this out. We show where the higher-grade zones, a better approach on how to develop the project on that. And if we’re delivering that type of a product, a large economic attractive, de-risked project, right when major companies are looking to acquire them, we have that perfect storm. We have that. So that’s ideally for our shareholders, that offers an earlier monetisation event rather than waiting all the way through to development of mine. There are two periods of time when there’s strong value added to it. From discovery to about Pre-Feasibility. And then again as a mine comes into production. But that gap in-between can sometimes be long and sometimes be challenging. And so we prefer to pass the baton off to a company that specialises in building the mine and let them get their benefit from that. And the First Quantum acquisition of our Antares project was a perfect example. We’re good at it discovering them and drilling them out. They’re very good at building them. So it was kind of a natural baton pass from us to them.

Matthew Gordon: If I look at your market cap, it’s around $50M. It would seem compared to some peers that we looked at before this conversation, it’s quite low. Do you think that’s a factor of having too much institutional, not enough retail? Why do you think market is not paying attention to you?

John Black: I think it’s just very early in the story. We’ve only recently launched the project. We haven’t really been able to table our own drill results yet on this project, those will come in the next couple of months, as we move forward and we’ll begin to reveal the strategy. So I think it’s one that just a little bit quiet and off people’s radar screen right now. It’s not due to the strong concentration of shares, there’s not a lot of float that’s available out there. But I don’t think it will take much interest in this company to get it back onto the map on this. So we think this is a perfect hidden gem for people to be watching for.

Matthew Gordon: It’s very interesting. And again, just dealing with some questions from the chat rooms and forums. Argentina, to me I’ve invested in some of the Lithium projects up in the north, you’ve operated in South America. You’re very comfortable with the mining environment and mining code in Argentina. Caused any problems?

John Black: The mining code actually works pretty well in Argentina and the potential for discovery is quite great and a number of existing deposits that are in this case available for acquisition, like we’ve done. The challenges in Argentina are really more due to the economy and politics of the country. And we see the country go through periods of time where inflation is out of control and it’s difficult to project how you would make a large capital commitment in the country. So there are windows of very good opportunity to invest, and there are windows of time when it’s not quite so good on that. It’s a bit unfortunate because the potential is fantastic in Argentina. If they can get that straightened out, it would be an extremely good opportunity for the country to move forward. And mining is an underdeveloped potential for them. They depend very much on their agricultural base. But there are some very interesting mining opportunities in the country that would provide substantial benefits for the country going forward.

Matthew Gordon: Right okay. And I know this is a slightly longer-term play, as as Regulus. I’m going to ask you a difficult question, so if you could only pick one, which one would you pick.

John Black: Well it’s kind of like asking me who is my favourite child. It’s a difficult challenge on this. They’re very similar plays. These are both long-term plays on Copper/ Gold. Both of them have a substantial Gold component to them. I would say Regulus will probably develop a little bit faster. We’re drilling more aggressively there on that project right now, and we’re driven a lot by the necessity for our immediate neighbours and the Cerro Corona mine down the down the road, to make transitions into larger mines in the not too distant future, to avoid closure costs. So that has a more aggressive timeline on it and is likely to move more quickly. I think there’s probably deeper value opportunity in Aldebaran right now because it’s a very good asset. It’s not well known to the market that we’ve put our hands on this and that we’re moving forward. We’re just getting that news out. So it’s a better opportunity get in earlier than Aldebaran. Regulus and the AntaKori project will probably move faster.

Matthew Gordon: Fantastic. Both children will be happy. John, thanks very much for your time on that. We will catch up in the next couple of months and see how you’re progressing. Some very interesting stories from South America. So thanks again for your time. And we’ll speak to you soon.

John Black: Okay great. Thank you very much.

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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.