Metalla Royalty (MTA) – It’s Just a Little Bit Different

Metalla Royalty & Streaming Ltd
  • Shares Outstanding: 35M
  • Share price C$7.10 (07.07.2020)
  • Market Cap: C$249M

E.B. Tucker, Non Exec. Director of Metalla Royalty and Streaming (TSX-V, NYSE: MTA)

I really like royalty companies. They can expose investors to many of the exciting rewards that exploration can offer whilst possessing a significantly reduced risk profile. They are a compelling value proposition and investment package. We spoke to EB Tucker a few weeks ago, when he explained that gold mining equities and ETFs are heading for a downfall, while physical gold and royalty companies are investment classes that are rising to prominence. This week, he’s here to talk about the company he works for, Metalla Royalty & Streaming.

Metalla Royalty is a precious metals royalty company based in BC. Founded in 1983, the company was constructed to generate leveraged precious metal exposure for shareholders via royalties and streams. The aim is to add accretive value for investors by consolidating a diversified portfolio of royalties and streams. The company secures royalties from the third-party market. The current portfolio is varied in terms of its developmental phase, with some churning off the cash and some looking towards future prosperity. The highly-experienced management team aims to take Metalla Royalty into the next commodities cycle as one of the leading gold-silver royalty companies.

Matthew Gordon talks to E.B. Tucker, 6th July 2020

After touching on the immense change created by inflation and quantitative easing, Tucker tucks into Metalla Royalty. Impressively, the company has royalties on many major companies including Pan American Silver, Goldcorp, Newmont (now a part of Goldcorp), Barrick Gold and Agnico Eagle. how does a relative minnow of a royalty company swing with the big hitters?

I’m impressed with this business model. It’s unusual, unique and smart. The proposal that Metalla Royalty has used to formulate its business strategy involves an innovative pitch. When looking to acquire royalties from a royalty-owners, rather than breaking out the cheque book, Metalla Royalty offers shares. The long-term view is that Metalla will accumulate a portfolio of royalties and streams of the same size, making shares in Metalla Royalty a much more attractive proposition than cash. Companies have access to a vast, diversified portfolio of meaningful royalties rather than clinging on to one 100%-owned royalty with a major. This argument has been so compelling that Metalla Royalty has managed to be one of the most active royalty company amongst its peers, making 18 transactions and acquiring c. 50 royalties. These results are consistent. The strategy is paying dividends, literally; and the share price is up nearly 700%.

Another component to the strategy is the kind of royalties that Metalla Royalty focusses on. The company chose a precious metals emphasis in 2016 because it rightly believed that the gold market was on the verge of a major upturn. Interestingly, Metalla Royalty prefers royalties on development stage assets rather than producers. It acquires some explorers too, but these are more of a happy accident than anything else.

Why does Metalla opt for development-stage assets when one would think production stage assets would add cash flow right here, right now? Tucker’s answer was very impressive. When a project is in a development phase, every time a new resource is published, Metalla Royalty gains value because of the additional uncovered ounces. Moreover, by picking up royalties with majors, the company can have a high degree of confidence that these resources will be fully and successfully developed; the majors are not reliant on an equity financing and are not suffering from any other potential barricade to production. There are hundreds of thousands of ounces yet to come out of the ground as the gold price moves, and these will push Metalla Royalty’s share price even higher. It’s about pulling the future produced ounces back into today. These are straight royalty net stakes, and Metalla Royalty has a free, non-operating carried interest on the production of the property. This is essentially risk-free cash that insulates investors from market volatility.

However, year-on-year, Metalla Royalty’s revenue is actually down 50% and year-on-year losses are up. Is this something to be concerned about? Tucker claims setting up the company for long-term growth is a much more astute strategy than “losing” ounces from a production company. This is because every time a producing company drills ounces out of the ground, these ounces are lost, and Metalla Royalty would need to replace them or lose value. However, development-stage projects are 24-36 months from production and are working extremely hard to prove as many ounces as it possibly can, while leaving all of the ounces in the ground. Every single ounce is underground and therefore every single ounce adds value to Metalla, especially as the gold price creeps up. “The best royalty investment is one that has development assets that are close in the pipeline.”

Metalla Royalty is able to make these deals when none of its peers seem able to because of its diligent purchasing strategy, using a sensible number of shares rather than stacks of cash. As these assets stack up, the exponential potential for Metalla Royalty becomes clear. The company appears to have a much higher ceiling for growth than the larger royalty companies. Metalla usually offers a smaller amount of cash, with the majority of the deal being comprised of shares. Each time a company deals with Metalla, they decide what sort of ratio they want; after all, they wouldn’t be talking to Metalla unless they wanted stock. The message is clear: selling stock to keep the lights on is dilution. Selling stock to reach a 12% internal rate of return is accretion.

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Metalla Royalty had to conduct a 4:1 share consideration in order to list on the NYSE in January. Tucker states that the trading volume increased significantly; the US volume is now “quite a bit more” than the Canadian volume. In order to get access to some of the large North American funds, this was a necessary step.

Metalla Royalty will be taking a separate vessel public in the Autumn. This company will focus on base metals like nickel, copper and zinc. Why did this need to be made separate? Tucker states it is important to keep a rigorous focus on precious metals for Metalla, or else the market can punish the company with a lower valuation. In fact, as seen in the Scotiabank monthly reports, precious metals royalties trade at twice the net asset value multiple to base metals. Base metals appear to damage precious metal royalties.

Tucker thinks the current approach of aggressive dealmaking will help the company reach its inflection point in the near future as it looks to push its value up meaningfully. When the company reaches a certain level of diversity with its assets, he expects there to be a “pop,” and the market will apply a higher multiple. If Metalla can de-risk its portfolio to the point where it would be able to cope if certain assets go offline, institutional investors will start paying a premium. Tucker expects the gold price to rise over US$1,900oz by the end of the year “like a magnet” before people finally wake up to the dwindling supply, generated by the smaller number of exploration projects after the gold lean years of 2015/16. He expects a “tremendous Canadian bull market” for these stocks, and every man and their dog will jump into the space. Capital will be hurtling at the gold space with a complete disregard for risk. His advice for investors? KEEP YOUR HEAD.

Metalla Royalty currently pays dividends. Would it be better off putting this money into projects? The philosophy is for Metalla to give 50% of operating cash flow back to shareholders, even if it’s only a penny, because it is shareholder money. It’s a refreshing, old-school mentality.

Should investors buy physical gold or invest in a royalty company? Tucker states that investors should own physical gold to protect their wealth, but the reality is that the multiplying effect of wealth in royalty company shares is more dramatic. It seems clear which option could make investors more money.

What did you make of EB Tucker and Metalla Royalty?

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Why You Should Own Gold – John Reade, World Gold Council (Transcript)

Interview with John Reade, Chief Market Strategist of World Gold Council.


The World Gold Council is an unbiased, objective, global authority on gold. Formed by 26 gold mining companies 34-years ago, it introduces investors to the benefits of investing in gold, including physical gold.

Gold is an especially useful investment commodity for 4 reasons:

  1. It is a source of portfolio performance.
  2. It is liquid.
  3. It is a source of returns.
  4. It is a means of diversification like no other.

We discuss the different ways to invest in gold, the outlook for the gold market and the primary drivers and mechanisms behind the most popular trading commodity behind oil.

What did you make of John Reade and the World Gold Council?

We Discuss:

  1. Introduction to John Reade and The World Gold Council
  2. Why Should You Own Gold? A Look at the Bigger Picture
  3. Long-Term Investments for Greatest Gain: Is That for Everyone?
  4. How Much Gold Should You Own and What it Depends On?
  5. Perception of Gold: Now vs 2-3yrs Ago
  6. Types of Gold You Can Own: Accessing the Market
  7. Investing in Equities and Royalties: Pros & Cons
  8. The Unbiased (?) Nature of the World Gold Council: Who’s Remunerating Them?
  9. India and China as Gold Consumers: Effects of COVID-19 On Buying Behaviours
  10. How Do We Value Gold and What is its Function?

CLICK HERE to watch the full interview.

Matthew Gordon: John, how are you doing, sir?

John Reade: Very well, thank you.

Matthew Gordon: Well, thanks for joining us. You are Chief Marketing Strategist for the World Gold Council. What do you do? And what does the Gold Council do?

John Reade: Well, the World Gold Council is a market development organisation for the Gold mining industry. We are owned by 26, I think it is, mining companies around the world. Some of the largest and most important mining companies are our members and our job is to increase the visibility of Gold specifically for investors. Ideally, we would like most investors to have a portion of Gold in their portfolio. My job as Chief Market Strategist is to take the messages that are produced by the research team, which reports to me, and to speak to investors, to persuade them of the merits of holding Gold in a portfolio.

Matthew Gordon: Okay, fantastic. And I think that I would recommend that people go to, and we’ll put a link below for your website. There is a lot of useful information, a lot of useful reports. And I think there’s a deep catalogue of those as well. What I want to talk to you about today, is that we have been speaking to a lot of macro economists over the past few weeks and months. It seems it’s all doom and gloom. And one of the things they keep saying is that Gold should be part of anyone’s portfolio. And then I guess there’s a number of ways to hold Gold. I want to talk to you today, maybe even a bit of role play. – so, I’m an investor. I invest in a multitude of different sectors, verticals, and I’ve never really considered Gold other than holding equities in Gold companies. So, can we, do you mind if we discuss that? Maybe start with the macro first of all, in terms of what is going on out there? Do you have a view of the macro economics and how Gold fits into that?

John Reade: We don’t produce an economic forecast for the world. What we certainly do is we consume other people’s economic forecast for the world, and we use that to sort of help think about the way that the economies and markets might deliver or perform in the future. I guess there are two points I’d really like to talk about. One is which is the strategic case for owning Gold, and the reasons why pretty much all investors should have Gold in their portfolio all the time. We can talk a little bit about the outlook for Gold and the Gold market and other markets perhaps at the end, but I’d start off by talking about the strategic case for Gold. Because I could have had this conversation three years ago or four years in the future. It’s just strategic arguments, which I struggle to pronounce sometimes, which is probably a bit of a failing. But it is strategic arguments, which is evergreen.

And it really comes down to a very few number of simple points: the first is about returns; Gold has been a source of returns over the last 10 years, over the last 20-years, and since 1971 when Gold was uncoupled from the dollar, those returns have been similar to, or better than most other asset classes, certainly over the longer period. If I look since 1971 for example, average returns for Gold have been just over 10%.  Average returns for US stocks over that period have been about 11% or 12%. Similarly, over a 20-year period, it has been better than US equities. Emerging market stocks outperformed Gold over that period, but only just. And then over the last 10 years of course, we’ve had a huge bull market in US equities, which have done particularly well. Gold still delivered average returns of about 5%, just under. It has been a source of returns for portfolios all the time, not just during financial crises, not just during periods of inflation or deflation, but pretty much throughout.

Matthew Gordon: But it says to me that you need to believe in the Gold thematic as a long-term hold. I mean, you can’t dip in and out of this, you’ve got to say, I want it as part of my portfolio, but I’m going to have to hold this. Obviously, it is liquid, should you need to, but the thinking is as a long-term investment is it?

John Reade: It really is a long-term investment. It should be a part of your portfolio all the time. Now, of course you can flex up or flex down your holdings based on a tactical view of where we are in the economic cycle. And perhaps, as I say, we can talk about that a bit later. But the argument here is that it should be in your portfolio. Pretty much every portfolio benefits from having Gold in it. Now, we’ve spoken about returns, there were a couple of other points to make as well, one of which is the diversification argument: Gold is generally uncorrelated to other asset classes, particularly equities. And the uncorrelated nature of it means that it is a good diversifier, but there’s more to it than that as well. We’ve broken down, and as I say, all this research is available on our website – Gold hub -for free. And I do recommend that you download it because it’ll go into far more detail than I can.

But when we looked at the returns and the correlation of Gold, as I say, compared to US equities, normally uncorrelated. But if you look at what happens when US equities fall sharply, so in other words, they are down by more than two standard deviations in a week, the correlation of Gold moves quite negative. So, in other words, you are negatively correlated to something that’s falling quite quickly.

And similarly, when equities are going up sharply, Gold is actually modestly, positively correlated to equities. So, when it’s going up, you’ve got a positive correlation. When it’s falling fast, you get a negative correlation. And that flip over of correlations that takes place under different scenarios is extremely rare.

We’ve looked at pretty much every other asset that you can put into a portfolio to diversify and with the exception of Silver, which is, well, more volatile, less liquid, and correlates quite closely to Gold. Gold is the only asset that actually demonstrates this flip over. So that combination of returns plus diversification that works when you really need it has a really interesting impact on your portfolio.

Typically, adding Gold to a portfolio increases the risk-adjusted return. So, in other words, you get more return per unit of volatility. And that’s a great attribute to place into a portfolio.

Matthew Gordon: And you’re not advocating any certain percentage. You are just saying that you perhaps should be considered as part of the portfolio.

John Reade: Well, there’s a good question, you know, the answer to that is complex. People often ask me how much Gold should I have? And the answer would be, well, it depends. It depends what else you’ve got in your portfolio, to be frank. The work we have done suggests that the more risk, and if you think of equities as being the principle risk component that you have in your portfolio, the higher proportion of equities you have in your portfolio versus say fixed income or real estate, the higher the proportion of risky equity is the higher the proportion of Gold you should have to offset that. And the reason there is, is that Gold is a better diversifier of equity risk than it is say, a fixed income is. It still is. But it is a much better diversifier of equity. So, the more equities you have, the higher the weighting of Gold you should have. And most portfolios come in at somewhere between 4% and 10% allocation to Gold when you do an optimisation study.

Matthew Gordon: It is quite interesting, actually. I think people are feeling slightly more nervous in this current environment, and like I said, we’ve had lots of conversations with macro economists, and I know you don’t necessary want to comment on that per se, but all this quantitative easing; it’s creating, you know, everything that you own is becoming devalued. And your investments right now are becoming worth less as a result of this. And we spoke to someone, we’ve got this investor club, and we like to talk to, and interview our club members, and what I’m saying, he switched 30% of his equities into physical Gold. Now, I think that’s quite extreme, but nevertheless, it’s kind of indicative of the sorts of conversations that we’ve been having recently. And the old adage that, you know, Gold being a safe harbour in times like this, or, you know, what may become, is true. And it has probably been true for about 3,000-years. But even on a personal basis, what’s your take on the way people are viewing Gold now as opposed to 2, 3-years ago?

John Reade:  Yes. We’ve certainly seen a pickup in interest. We’ve seen a pickup, an interest in Gold investment in a number of ways, and that goes from bar and coin demand in Western Europe and in North America, where we’ve seen a big jump in coin sales in the States, and a lot more interest in in Gold bar buying, probably from investors such as the one that you mentioned. We’ve also seen institutional interest in Gold coming through, and that’s usually reflected in, well, in a couple of ways. One of which is exchange traded funds. Another is actually buying physical Gold and holding it with a bank perhaps in an allocated account, a bit like a safety deposit box. So, one of the things that we do at the World Gold Council, the research team is, we track the inflows into exchange traded funds on a daily, weekly, monthly basis. We produce a nice monthly report on it, and I often tweet or blog on the trends that are going on. And certainly, we’ve seen a big hiccup in inflows into physically-backed ETFs over the course of this year.

Matthew Gordon: Okay, well, let’s segue slightly; I did want to get onto the liquid market, as it were. And also, you know, coming back to enhanced portfolio performance, but let’s talk about the different ways people can view Gold access, investing in Gold. So, obviously we have talked a little bit about physical there. Can we just talk precisely how people can do that? You mentioned coins, but there’s bars, ingots and so forth.

John Reade: Sure, and it depends, again, on which market you’re in. And I know that your subscribers are from various different markets. But to be frank, in most markets around the world, you can find a place where you buy physical bars and coins. It’s not the cheapest way of buying Gold. You’re probably going to pay, the minimum sort of premium over the OTC Gold price is probably 3%, and for a coin that could be as much as 7%. And when you sell it back, you probably get the Gold price at best, and not even, you know, potentially even a discount.

But for people that are really concerned about systemic financial risk; they’re worried about the security of the banking system. They’re worried about even Gold in safety deposit boxes or in allocated accounts. This is sometimes the choice that they choose to make. And it’s interesting; it is one of the things that I keep an eye on, is to see not only how much Gold has been bought in investment, but in what types. And when you see physical bar and coin demand in the West picking up, you can see that people are really worried about the future.

If you see people investing in futures, and there’s a big futures market in the States called the Comex futures market, which is part of the CMA. You see futures market investors, or speculators, playing there, you know they are trying to profit from the Gold price. ETFs are probably somewhere in between. So those are three of the methods.

Now, we’ve spoken about bar and coin demand. Exchange traded funds, which were pioneered by the World Gold Council back in the early 2000s, we also are sponsors of the largest one, which is GLD or the SPDR GLD in the United States. And we have others, and there’s a whole plethora of funds out there; probably about 80 now in our database in most major markets around the world. These allow investors to buy an instrument whose only assets are Gold. So, in other words, you are buying units issued by a trust which physically owns Gold held in a vault. And that Gold is audited. It’s not lent out, it’s in an allocated account. So, it’s as safe a structure as can be put together with the advantage of an ETF because you can buy it in your stocks and shares portfolio then list it on stock exchanges. And the management fee for the products varies from, I think the lowest is 17 basis points per annum. And there are some up at the 50 basis points per hour. So, lots of different markets listed, all in the end, the same underlying exposure, which is to physical Gold. And compared to some funds, as I say, that’s a reasonably cheap way of doing it.

The futures markets, and they exist principally in the United States, although there are other around the world, including Shanghai, which is big and growing now. Futures markets allow investors to access Gold in a different way. Futures obviously allow you to buy Gold with leverage and margin. It’s a more complicated way of accessing the market and it’s not for everybody. But certainly, there are large liquid Gold futures markets around the world that people can gain access to.

Matthew Gordon: It is quite interesting times at the moment. You have been through a few cycles. You have seen a few things, I would suggest. But we have been having conversations recently with people like Peter Grosskopf, CEO of Sprott, you know, he’s a big digital Gold fan, so, effectively Gold-backed. We’ve seen companies who are printing Gold notes. So, Gold between – yes, it’s true – Gold between laminate sheets, but printed at a nano level. So, people can collect them like a coin, or they’re suggesting that they would like to see these, you know, actually physically traded. And if you look at the bank of Ghana, they are actually in the process of printing some of these Gold notes. And I don’t know if it’s a novelty, or these sorts of things happen every cycle, every time Gold goes up. I mean, what sort of things have you seen in the past in terms of people trying to take advantage of the situation?

John Reade: One of the funniest things I’ve seen have been Gold business cards. It was a Japanese trading house. I can’t remember which one it was now. This was in the 1980s. They issued to its executives, Gold business cards. Not gold-plated, solid gold business cards, which they would hand out very selectively to their most important relationships. So, I think from memory, every executive, every top executive got a hundred business cards to hand out.

Matthew Gordon: I think I’ve just worked out what they were doing there.

John Reade: So, to be honest, every bull market in Gold, every time where Gold has regained its tactical allure to investors, we see this sort of innovation. And it’s generally very good. There was, I think the last time around I saw, yes, I think that it must have been 30g or 50g wafers of Gold which you could snap off into 1g units. So, one of the criticisms sometimes about owning physical Gold is, you know, you’ve got a 50g bar, or a 1oz bar, what do you do with it? I mean, no, one’s going to give you change. Well, you can break it up and get it into smaller pieces when you’re trying to buy your, whatever you are trying to buy in exchange. So, I think this sort of innovation is very typical.

I haven’t come across the laminated Gold sheet or the Gold notes. I think that’s a really interesting idea. I mean, look, what I would say is, you have to be really careful from who you buy physical Gold. And as soon as you’ve laminated it and put it through two sheets, then I wouldn’t be necessarily confident about what’s in there unless I bought it from an organisation which I really trust.

I’d also be very careful about premium. The premium that you pay over the spot price, to me is an important determinant of whether you should be getting involved or not. And in the end, you can buy 1oz Gold coins at probably 5%, 6% premium to Gold. That is probably about the cheapest you are going to be able to get relatively small units of investment Gold. I would be surprised if those laminated nano printed things are trading at tens or even hundreds of a percent premium to the underline. But as I say, I haven’t come across them before, but I certainly shall look into them.

Matthew Gordon: Well, I’ll send you the details. To your point, they come in different denominations. You can hold it as low as USD$3 up to USD$150. I think, certainly for the US components that they’re looking at. I guess their biggest challenge is going to be understanding and distribution in the market. But that’s for another day.

Equities – lovely equities. Most Gold producers have seen an uptick in, you know, because the Gold price, which had been sitting at about USD$1,250 for so long, you know, last August it started rising. It is up to around USD$1,700 at the moment. Everyone is benefiting, cash is flowing, and increased their optionality in the marketplace. But as investors, we see, and quite often see these quite sensationalist headlines of Gold going to X number, usually $3,000, $5,000, $10,000. I’m not going to talk to you about what your guesstimates are. I know you stay away from such sensationalism, but it does suck people in, and people do have to take a view on Gold as a thesis. Most people, predominantly, people invest in equities because it is slightly easier to understand. Those guys are digging underground. There is Gold under there. They tell us how they’re going to get it and how much it’s going to cost.

What’s your view on equities as an investment? Because we had E.B. Tucker on the other day, he was telling us that ETFs and equities are dead. Physical Gold is the only way ahead. Do you still see a role for equities in the market?

John Reade: I’d have to qualify what I say here: we don’t study Gold equities closely. That’s not part of our mandate. We’re actually into the Gold market. I am somebody who started his career underground with a shovel, working in the Gold mines in South Africa. I’ve been a Gold equity analyst. I’ve been a fund manager. In fact, I’ve been in Gold in one way or another for 35-years. I have seen all different aspects of the industry. The difference between Gold and Gold equities is that when you’re buying something which is physical Gold or backed by Gold, like an ETF, you’re getting exposure to the Gold price, and certain credit risks aside, you know what you’re getting. You buy a Gold mining company, you’re getting exposure to Gold, but you’re getting a lot more as well. In theory, you’re getting leveraged exposure to Gold because these Gold companies produce Gold at a cost of maybe USD$1,000 or USD$1,200 p/oz. The Gold price is USD$1,700 p/oz. If the Gold price goes up, their margins expand by more than just the Gold price going up. You’re getting leverage there. You’re getting exposure to exploration success; all Gold mining companies look for more Gold, either it’s of their own operations or at exploration projects. And, you know, you can hit it lucky and somebody can discover the next Eldorado, and that does happen. And investment success can be a big part of the performance of a Gold mining stock as well.

But you said it yourself; you’ve got to dig it out of the ground. And as a mining engineer and as an investor in in Gold stocks previously, that means that suddenly there are risks involved in that. And those risks can be technical. They can be geological. They are often political. Often Gold mining takes place in countries that are not developed countries. But then again developed countries, it can be very difficult to get an environmental permit to develop a mine. There’s all manner of additional pros, potentially, and cons behind investing in Gold equities.

I leave Gold equity investments and the comments on individual Gold stocks to people that are employed to do exactly that. All I would say is that the Gold price is only one component of the potential returns that you get in Gold equities. And I think, look, I think a lot of money can be made in Gold equities. And if you look at previous cycles, Gold shares have performed really well under certain circumstances. But that’s not really our area of focus.

Matthew Gordon: And I know that this is probably also not, because it is equities in a way, but it’s the de-risked equities: it is Gold Royalties. Again, people are viewing those in very sort of similar terms to the ETFs in a way.

John Reade: Well, Gold Royalty companies have been great success stories over the last couple of cycles. And there’s lots of merits in the arguments of what they do, particularly the diversification. One of the good things about them is that they’re generally exposed to lots of different producing Gold mining companies. But it fits pretty much into the same category, as far as I’m concerned, as Gold equities in that it’s not something that we’re experts upon.

Matthew Gordon: Can I just talk about, you mentioned earlier that Gold outperforms broad-based commodity indices, generally, generally, over time. Can we talk about, because I do want people to come to your website? If you are interested in investing in Gold, you have got to go to the World Gold Council website. Okay. It has very robust data. But can we talk about the way that you go about measuring this data? You know, in fact, how are you remunerated? Who gives you money to exist? How does it work?

John Reade: Well, we are owned by the Gold mining companies. They formed us, I think now 33 to 34-years ago. And they are there to, sorry, they sponsor us on the basis of the amount of Gold that they produce. For each ounce of Gold that they produce, they gave us a certain amount of money to fund us to develop the Gold market. And as times have moved on, I mentioned before that we were instrumental in bringing the exchange traded funds, Gold-backed exchange traded funds to the market. And because we were involved in the management of two of the big exchange traded funds, we get some revenue from there as well. So we’re no longer wholly dependent on contributions from members. It’s a mixture of the two.

Matthew Gordon: So, it is unbiased research. Unbiased, not necessarily advice, but information on the Gold market. Are you in any way influenced by outside groups to push Gold when perhaps you shouldn’t be?

John Reade: Well, let’s put it this way: when I joined the World Gold Council three years ago, I’d been in this industry for 32-years. The only reason I joined here, or the number one condition that I had when I joined the World Gold Council, was that I would be allowed to be objective. When you are producing data about Gold demand, Gold supply, and what’s happening, and what’s happening in various markets, there is no point in producing data when it’s made up. You have to be objective. And I’ll give you an example: we came out with our Gold demand trends report, which is a quarterly report we produce looking at primarily demand, but also a little bit on supply. We came out with our first quarter Gold demand trends number. And I’m just looking through the headlines here. I’ve got the report up from Gold hub. The pandemic slashed jewellery demand as governments across the globe-imposed lockdown measures. Demand fell to the lowest on record, a 65% decline in China. We’re not trying to sugar coat what happens in the market. There are good things that happen. There are bad things that happen. In terms of our data and our analysis on this we are objective as we can be.

Matthew Gordon: Now that you’ve actually hit upon the next question, which was: traditionally, I used to, when I was in banking, I did a lot of business in India and China, both huge Gold consumers on jewellery and as a means of saving. It is kind of, I think when there’s a bull market, people go, ‘Oh, why go to the antiquated measure of hoarding small amounts of Gold under your mattress at home?’ And then when times are a little bit tougher, or what people suspect may be coming down the line, it’s in vogue again. It is actually in vogue again. But as you say, China has been affected on the jewellery market, as has India. Do you think that after we get through this COVID lockdown period, it is going to be a resurgence of buying again? Are we going to get back to the norms of before?

John Reade: Eventually, I expect, depending on where the price is, but it wouldn’t necessarily be quickly. If you think about what happened in the first quarter; we had China going into lockdown first because that’s where the virus seemed to affect first. So, the China market was affected most of the first quarter, and now we’re seeing the Chinese economy coming out of lockdown, and jewellery demand is, well, has improved from a very low level, but it’s not growing rapidly at the moment. In fact, I’d argue that if you compare it to other aspects of the Chinese economy, it’s lagging somewhat. I expect sequential improvements there, but I don’t care how fast it improves 2020 will be a core year for Chinese jewellery.

In the case of India – first quarter wasn’t great anyway, and the lockdown mostly will affect the second quarter. I mean, I was talking to a managing director in Mumbai earlier today on a weekly call we have, and, you know, he says, yes, the Indian economy is opening up again. But again, we’re not expecting a very rapid increase, a very rapid recovery in jewellery demand from India and China. And in fact, if you look across the numbers for the entire world, I think there was one country that actually showed year on year improvements in jewellery demand in the first quarter. And that’s for very technical reasons for something that was happening last year. It’s not going to be a strong year for jewellery. But in a way, this is one of the advantages of the Gold market. Many commodity markets are one trick ponies: They genuinely are boom to bust. I was going to use another mining expressions there, but I probably shouldn’t. things go very, very well because of the demand for auto catalysts and petrol cars. And I’m thinking Palladium here. So that goes off to the moon and then there’s a switch over towards more diesel vehicles that took place, and then suddenly Palladium is out of favour and it crashes back again.

There are a lot of commodities and indeed, a lot of assets, which are dependent upon a very narrow range of drivers. Gold is much more balanced; you’ve got investment demand, you’ve got jewellery demand, central bank demand. You’ve got technology demands. So pretty much every electronic good that you have has got some Gold in in some form or another. And the big two: investments and jewellery, they tend to vie for dominance depending on what’s going on in the world. So, jewellery demand is very much driven by economic growth, prosperity, particularly in the emerging markets that really drive Gold demand. So, historically India. Now over the last few years, more so China. But you name the countries – Turkey, Indonesia, lots of demand coming from there. Investment demand is more Western-centric in general. We are seeing development in investment markets in some emerging markets, but generally speaking, it’s a Western phenomenon, and that tends to do well when economic growth is weaker. And the fact that jewellery demand has collapsed at the moment, partly because of the coronavirus, partly because of the rapid increase in the price, that is absolutely normal. Gold is being driven up by investment and speculation so that has come to the fore and has become the dominant market.

Now, we will come out of this current coronavirus crisis. It might take a few years for the global economy to recapture the levels that it saw back in 2019. But it will recover. I’m sure these viruses will eventually be brought under control either by vaccines or drugs or whatever. At that stage I would expect to see investment demand as the component of the total decline and jewellery demand picking up again. So very much, you know, what I’m taught, you know when investment demand is weak, because I spend a lot of time talking about what’s going on in the Indian and the Chinese physical markets, and you’ll know when jewellery is weak, because I’m talking about ETF inflows and bar and coin buying in the West.

Matthew Gordon: Yes. A really simple question coming up, okay? Which you’ve probably had –

John Reade: They could be quite hard to answer.

Matthew Gordon: So how do we value Gold? It doesn’t really perform a function. It is used in some electronics, as is Silver. And Silver is used in solar panels as well, but you’ve got all of these wonderful commodities, like Palladium and Nickel and Lithium and Graphite – they are going to be used to drive our world; this electric vehicle revolution that we are going to hopefully see at some point in the near future. But Gold doesn’t really have a function other than people wearing it as jewellery on the whole. So how does the market value Gold? Why is it USD$1,700 today? Why is it the most traded commodity outside oil?

John Reade: Well, first of all, I mean, the simple answer to your question is that the Gold is USD$1,700 p/oz, or thereabouts, because that’s the intersection between supply and demand. That’s the market price for it. How does one put a theoretical value on Gold? That’s a different argument. First of all, I would slightly disagree. I would say, look, 7% of demand typically for Gold goes into industrial applications with, primarily, electronics. It is an essential component of 21st Century life. And ironically, for all of the focus on Platinum and Palladium, and then their industrial applications, more Gold in tonnage terms is used in industrial applications each year than either Platinum or Palladium. It is important. Admittedly, 93% of demand isn’t in industrial applications, but typically about 50% of demand goes into jewellery. And again, that’s very much an intersection between what people think it’s worth when they go and buy Gold to wear or to give as a gift. I think the investment side is important too; Gold has an historic store of value that dates back, I always get in trouble for this. I mis-tweeted something, I think it’s in the order of about 5,000 years since the first evidence of Gold being valued as something beautiful and valuable. And we’ve seen coins in existence, or coins or tokens, I think for at least 3,000 years. It has been around a long time.

If we look at how the supply and demand intersect in the Gold market and what drives them, we’ve been able to build, effectively, a quantitative model, which tries to predict the components of demand, and also the impact of supply as well. And what that should mean for Gold, depending on the macroeconomic variables you put into it. So, on section of our website – Gold hub, we have the gold valuation framework and the internet tool that we’ve developed called quorum, which allows investors to stick in their assumptions for factors like economic growth, currencies, credit spreads, et cetera. And it will tell you roughly what you should expect to see in terms of all the components of demand. And that should give you, based on your inputs, an expected return for Gold, both in the short term, but also in the long-term as well.

And we’ve done this to answer your precise question that you’ve said; a simple question sometimes requires a complicated answer. We spent about 3-years looking at all of the drivers of all the components of Gold supply and demand, putting them together into this valuation framework. And it’s there to answer two questions really. It’s like, well, number one – how do you value your Gold? And number two – what sort of return should I put into my asset allocation model for Gold.

Historically, people have struggled with that. At best they’ve said that it might hold this value in the long-term and you put in zero real, depending on the assumptions that you put into the evaluation framework, the quorum tool will tell you that long-term expected return of Gold will be greater than 0. And let’s say it depends on your assumptions. That’s proved a really interesting piece of work that we’ve done. It has allowed us to engage with institutional investors and particularly asset allocators to make the case why you should think about putting Gold into your portfolio. So not just on looking at historic price performance and historical relationships, but a mathematical model which they can tear down. They can look at themselves. With macroeconomic variables that they are already using in their other work. And that they can say, all right, fine, we will put those in here. How much should we expect to return over the long term?

Matthew Gordon: I love that it has taken 3-years to put together an answer to a basic question. That’s fantastic.

John Reade: Well, it’s taken 3-years since we’ve even started to think about ways that we could answer the question. We’ve been asking that question for much longer than 3-years.

Matthew Gordon: Well, no, but I like it. I think people need to understand that it is okay to ask the simple questions because sometimes they are the hardest to answer and they are the best answers to know. So that’s fantastic. Look, John, I’ve taken up enough of your time today. That’s been a wonderful introduction for us and some of our viewers to the World Gold council and some of the facilities available to them and information available to them. We’d love to have you back on and drill down on a few of the topics we discussed just before we went on air. I appreciate your time. And thank you again.

John Reade: Thank you very much. It was a really interesting conversation.

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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.

Predictive Discovery (PDI) – Investment Slow Burn Hots Up Rapidly

Predictive Discovery Ltd
  • ASX: PDI
  • Shares Outstanding: 824M
  • Share price A$0.08 (03.07.2020)
  • Market Cap: A$66M

Interview with Paul Roberts, Managing Director of Predictive Discovery (ASX: PDI).

Predictive Discovery, founded in 2007, is a an Australian mineral exploration company with a project portfolio business model. After 10-years of stagnation, in April, the market was excited by the diamond drill results released for several of Predictive Discovery’s Guinean projects, with the market cap lurching from less than A$5M to over A$50M overnight, quoted in the company’s investor presentation as a 733% gain in a 48-hour period.

The company owns a variety of land packages across Guinea, Côte d’Ivoire and Burkina Faso. This portfolio features five 100%-owned greenfield gold exploration projects in Guinea, 10 ‘prospects’ with potential for multiple large gold discoveries in Côte d’Ivoire, and 8 ‘prospects’ with an established Mineral Resource Estimate in Burkina Faso. The company has a JV with Resolute Mining in Côte d’Ivoire, but the current focus in on the projects in Guinea. The numbers are solid, but Predictive Discovery needs to carry out a more extensive drill programme to uncover its true scale. It aims to deliver a JORC compliant resource towards the end of 2021.

Matthew Gordon talks to Paul Roberts, 3rd July 2020

So far, investors might be frustrated that Roberts and his team have learnt on the job with investors’ money, but this is all too common in the junior mining space. All will be forgiven if Roberts can deliver accretive value for long-suffering shareholders, but he is now under even more pressure to deliver such returns.

Starting with the non-core Burkina Faso assets, Roberts is pleasantly candid. The regional security crisis in the Sahel has been well documented by Crux Investors contributors, but Roberts claims that the feasibility of working on a project with an acceptable level of safety it is largely dependent on the specific location within the country that the project is located. Predictive Discovery’s projects are in North-East Burkina Faso, a real terrorist/criminal enterprise hotspot. The tenement package runs over 100km along strike from the Niger border down towards Golden Rim’s gold property. There are several issues for the company in the region. Chiefly, the company is not at a development phase. In order to engage in the earlier stages of exploration, the amount of security that is required becomes problematic. It is NOT POSSIBLE to work up in the North-East of Burkina Faso safely right now. However, further to the South-West of the country, it becomes more feasible, provided a company has a detailed plan and a high tolerance for physical risk. Once a company has a mining operation, securing it becomes possible. Right now, Predictive Discovery is not doing any work right now. He believes these projects may have a place in future development, but he doesn’t think that Predictive Discovery will be the company to deliver this; it simply does not have the tolerance for such a high degree of physical risk. The market attributes 0 value to the projects. There are much safer fishes to fry for Predictive Discovery.

In the Ivory Coast, the current activity is taking place at the Boundiali Project, one of the JV projects shared with Resolute Mining. A discovery was made there in 2016, the Nyangboue Prospect, and 2km of drilling at a 6km soil anomaly through up some “very nice” results. As it stands, the company would define mineralisation of c. 1km. As it stands, it won’t reach 1Moz, but if it could be taken to depth, this number may be reachable. The work that hasn’t yet been done is exploring the 4km to the north: the current activity. Resolute is actively drilling, and Roberts is hoping for some news over the next 1 to 2-months. All in all, the project offers up 19km of gold soil anomalies. Success is in the hands of Resolute Mining and their appetite.

The other JV project is Ferkessedougou North, featuring a 17km-long gold-in-soil anomalous trend. The anomaly of primary focus is the Ouarigue South Gold Prospect. Roberts thinks it is the “most interesting (ore) body” found in the Côte d’Ivoire so far. It is strike limited and “fat,” but the company announced some good drill results on the 16th April, just a day after the Guinea results were announced. New investors have clearly been impressed by the value proposition on offer. Ferkessedougou North’s resource persists at depth. It is a granite-hosted body and a 10km section directly along strike that appears to be on a structure has seen no drilling whatsoever. Continued drilling could throw up some exciting numbers.

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The agreement with Resolute Mining appears to be satisfactory for the major right now, and should “certainly” keep the company interested for the next 12-months. Predictive Discovery “expects” Resolute to go and do more work at Ferkessedougou North in the near future, likely before Christmas. Resolute is also interested in the “unfinished business” at Boundiali. It appears that this is the largest Greenfield investment that Resolute Mining has, so it must be interested in something. However, this is exploration. If Predictive Discovery’s projects can’t deliver the desired scale, at least 2Moz, Resolute is likely to step back, and the projects will need to be reclaimed as a smaller-scale operation. Predictive Discovery is currently a contributing partner in the JV, holding 23.5% equity. A new programme is presented every 6-months, and the company has the option to decide whether to contribute or not. The “dilution phase” ended in June of last year, and the contribution phase has now commenced. The market is not currently attributing much value to the JV.

In Guinea, the 100%-owned exploration projects are Kankan, Nonta, Kaninko and Boroto. Predictive Discovery holds c. 500km2 of prospective landholdings and all projects contain artisanal gold workings, a good indication of the presence of gold. Four of the projects lie within the Siguiri Basin, which hosts Anglogold’s large Siguiri Mine (+10Moz). At Kaninko, the drill results featured broad, high-grade gold mineralisation of up to 46m at 6.58g/t gold from 4m, confirming a discovery with excellent growth potential. 70% of the 24 reported drill holes were mineralised, and there were several high-grade intercepts.

Results from a 24-hole aircore and reverse circulation drill program on the North-East Bankan prospect threw up broad north-trending zones that are at least 450m long and open in all directions. Furthermore, the 46m intersection was 10m at a whopping 26.52g/t from 34m, while an equally impressive result demonstrated 42m at 2.92g/t from 8m. These sorts of anomalous grades aren’t necessarily rare for the area, but they are undeniably encouraging.

After completing its most recent raise on the 6th June, Predictive Discovery has raised roughly US$40-50M over its 10-year lifecycle. Roberts isn’t worried about a potential overhang because he believes the recent turnover of the stock has been “mind-bogglingly” large and most of the tide sellers have gone. Aurora recently sold some of its shares, which hasn’t helped, but Roberts thinks most of it has now washed through, especially with the finalisation of the recent financing.

With the US$9M cash in Predictive Discovery treasury, the bulk of the money will go to Guinea, and the bulk of that will go on Kaninko. This appears to be the key to getting the market excited.

Roberts owns 5.5M shares from the c. 824M outstanding. All were purchased on the open market. Nobody has received a pay rise just yet…

Moving forward, Roberts will need to add some institutional shareholders into the mix to give the stock some stability. Right now, there are very few shareholders with more than 5%. It will be interesting to track the company’s progress; when will the company provide enough substance to the market to attract institutional investment?

What did you make of Paul Roberts and Predictive Discovery?

Company Website:

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.

Banyan Gold (BYN) – Yukon-Based Gold Reset Excites The Market

Banyan Gold Corp.
  • TSX-V: BYN
  • Shares Outstanding: 134M
  • Share price C$0.27 (02.06.2020)
  • Market Cap: C$36M

Interview with Tara Christie, President & CEO of Banyan Gold (TSX-V: BYN).

When a share price climbs almost vertically, it’s time to pay attention. Christie is well-spoken and extremely smart. This is an encouraging junior gold story, but what makes it stand out from the densely packed crowd of junior gold explorers?

Banyan Gold Corp., founded in 2010, is a Yukon-based gold explorer and developer. The company’s focus in on advancing 2 gold properties, the Hyland Gold Project and the Aurex-McQuesten Gold Project.

Let’s start with Hyland. Christie inherited this project when she joined in 2016. And she tried to make it work. With hindsight, possibly her only bad call. The 43-101 Technical Report, announced on May 25th, indicates a mineral resource of 8.6Mt at a grade of 0.85g/t Au eq for 236,000oz gold equivalent with an inferred mineral Resource of 10.8Mt at a grade of 0.83g/t gold equivalent: 288,000oz Au eq at a 0.3g/t Au eq cut-off. The Resource is open at depth and in all directions. The majority of Hyland’s potential is derived from the appositely named ‘Main Zone.’ The issue with Hyland is that the market was expecting more and did not react well when the numbers came out. Christie says the changing gold environment may mean that Hyland becomes interesting again at some point, and they are looking at ways to sell or off-load it. They have minimal obligations on the project. I’d suggest for now that investors attribute no value to this for now.

Matthew Gordon talks to Tara Christie, 2nd July 2020

However, the main focus going forward will be the 9,230 ha Aurex-McQuesten Property, is situated in the Mayo Mining District in close proximity to both Victoria Gold’s Eagle Project and Alexco Resources’ Keno Hill Silver District. That’s some favourable geological potential right there. Banyan Gold believes that Aurex-McQuesten is highly prospective (we’re used to hearing that word from every gold junior on the planet by now though). The orebody appears to contain structurally controlled, ‘intrusion-related’ gold-silver mineralisation, which is in relation to the ‘Tombstone intrusive suite.’ There are numerous gold targets at the property, including the ‘Airstrip’ Gold Target, which Banyan has developed a mineralisation model for. The transportation infrastructure around this target is strong; it is located adjacent to the main Yukon highway and is just off the main access road to the Victoria Gold open-pit. Moreover, the power infrastructure is equally strong, with a 3-phase powerline and Yukon Energy Corp. switching power station providing all the energy the company needs to push forward. There’s even good cell phone coverage… For a location like Yukon, which is often viewed as remote, this infrastructure appears to be quite unique.

Banyan Gold Corp. has C$1.1M in cash, but it has also issued a variety of warrants that investors have indicated they will be exercising. This should be another C$300,000 coming into the treasury. A further C$1.6M could come in if ALL of the warrants were to be exercised. The uptick in the last few weeks is attributed to Christie’s marketing efforts; the company has been getting the story out there to new investors while reminding existing investors of the value proposition. Many CEOs could learn a thing from the storytelling strategies of Christie because they’re working. While junior exploration investment isn’t necessarily attractive right now, Banyan Gold is an attractive proposition in its own right and investors are realising this, with trading volumes reaching 15M shares in 3-weeks: a remarkable figure considering only c. 131M shares have been issued, Moreover, institutional investors, such as Sprott, hold large stakes in Banyan Gold, further emphasising the amount of retail interest in this stock for such volumes to be achieved with less of the pie.

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Banyan Gold has announced a 1,500m phase 1 diamond drilling exploration programme on the Aurex-McQuesten Property. The company has a “very low” overhead and the majority of the company’s money will go into the ground. If additional funds are to come in, it would see Banyan Gold through to September with an upsized drill programme. The company has no problem drilling 10,000m this year.

Christie is the daughter of a PhD-holding structural geologist. She has spent most of her life conducting exploration work, sitting on an environmental assessment board, running a consultant business and running a large-scale mining operation in the Yukon. Remarkably, in her 20s, she took charge of the entire operation, helping the company through some very “lean” gold years. She has certainly earned her stripes and is an expert on the Yukon permitting process. These are safe hands. A private-sector background has enabled Christie to learn the importance of frugality.

The company stands out from the crowd because of the favourable mining jurisdiction, strong management track record, large institutional ownership, existing infrastructure, and, above all else, a promising gold deposit. I’ll be keeping my eye on this year’s exploration programme, hoping for favourable results.

What did you make of Tara Christie?

Company Website:

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 Mining (PGM) – Exciting Gold Story that is Nowhere near its Peak

Pure Gold Mining Inc.
  • TSX-V: PGM
  • Shares Outstanding: 384M
  • Share price C$1.7 (01.07.2020)
  • Market Cap: C$652M

Gold investors want to see gold producers striking while the iron is hot. Pure Gold Mining claims that it is 32-weeks away from commencing production: ‘We’ll pour gold before Christmas.’ This is an exciting, high-grade gold story. Time for another re-rate?

Pure Gold Mining: a Canadian gold development company aiming for production by the end of 2020. Pure Gold Mining’s share price has skyrocketed in the last few months; recently, it looks more like a Tesla stock chart than that of a gold producer. Clearly, the market is appreciating the imminent high-grade gold production after years of slow progress.

Let’s get straight into the asset. The single focus for Pure Gold Mining is on building Ontario’s next major gold mine. The PureGold Red Lake Mine is a high-grade, underground mining operation that has an impressive production rate of 800tpd. An encouraging Feasibility Study was released in February 2019, outlining a 12-year underground life-of-mine (LOM). Pure Gold Mining made a construction decision in August 2019. Let’s expand on some of the excellent economics:

  1. CAPEX fully-funded.
  2. AISC is just US$787/oz. WOW.
  3. The average gold grade is a huge 9g/t, making the PureGold Red Lake Mine the highest-grade development stage gold deposit in Canada today.
  4. It will also place the project in the top 5 grade in Canada: 17th in the world.
  5. The NPV (5%) is US$390M with a 51% IRR and $1.9Bn revenue.

Amazingly, these impressive figures have been calculated at a low US$1,500/oz gold price. With today’s price of over US$1,700/oz gold, the operation could become even more profitable. This is a tier-1 project in a tier-1 mining jurisdiction. In fact, considering the company was founded by Oxygen Capital, it appears to have a tier-1 team too. This is all very exciting, but once phase 1 is concluded, what do investors have to look forward to in phase 2? How will Labrenz deliver growth and accretive value throughout the lifecycle of the resource?

Matthew Gordon talks to Darin Labrenz, 30th June 2020

Phase 1 is to get into early production for cash, as Labrenz sets out on his mission to turn Pure Gold Mining into ‘Canada’s next large-scale, iconic gold producer.’ The technically proficient team is confident it can achieve this with minimal fuss. It’s a consistent orebody that has already been significantly de-risked with 1.3M meters of drilling.

Phase 2 will involve expanding the resource. The orebody persists at depth, and Labrenz is confident it has more to give. It’s nowhere near its peak yet. The brownfield 42km2 land package has a huge mineral system. A structural mineral corridor that bisects the property runs for 70km. There is immense potential at the existing discoveries, and new discoveries in the South provide a further sprinkle of excitement. There are numerous high-grade zones that are soon to be drilled, including the 20-30g/t highly-accessible ‘8 Zone.’ Pure Gold has just initiated a 50,000m drill programme over the next 18-months that aims to convert resources to reserves in the footprint of the phase 1 mine. The next step will be to grow at surface resources and de-risk them. Ultimately, the productivity of the mining centres, and their ability to deliver into a decentralised milling facility, will become the preeminent focus, as Labrenz sets about delivering a high-grade gold mining ecosystem. In the long-run, he expects to more than double the resource. Impressive.

Moreover, eventual M&A opportunities could be aided by the cash flow from getting the PureGold Mine up and running; it will significantly enhance the company’s optionality. Labrenz is far too smart a cookie to allow Pure Gold Mining to remain a single-asset gold player forever, and while he is coy on what exactly he plans to do regarding potential land package acquisitions, it seems clear that once phase 1 and 2 are dealt with in their entirety, there is more to explore. For now, the company has more than enough on its plate and needs to demonstrate it can execute its phased approach properly.

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The company has US$150M available in funding, and US$86M remaining capital expenditure to complete mine construction. This should be more than enough to carry the company through to full production in Q1/21 next year whilst it completes the aggressive exploration process.

Moving forward, Labrenz will continue with his attempts to drive liquidity into the stock as the company evolves through its phased approach and aims to take its spot on the GDXJ.

These are exciting times for the company and for shareholders. The high-grade potential is undeniable, and its being delivered in a systematic, logical fashion. This could be an exciting long-term hold, through investors may want to consider acting now if they want an optimal margin.

Company Website:

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.

Valaurum, Inc. – A New Gold Currency?

Interview with Adam Trexler, President and Founder of Valaurum, Inc.

Valaurum is a private gold technology company that sells the ‘smallest verifiable unit of gold available on the world market,’ the Aurum®. Valuarum has patented nanotechnology that allows them to spray gold onto a film in different denominations (US$3-US$150), with the goal of making gold investment and ownership accessible to everyone, putting gold into a transactable form.

The team is strong. It features a former director of the US mint, Edmund C. Moy, as an advisor, alongside Director, and former GC of the Department of Homeland Security, John M. Mitnick. There are plenty of people formerly from the U.S. treasury onboard too.

Matthew Gordon talks to Adam Trexler, 27th June 2020

Aurum® itself is a thin layer of gold or other precious metal sandwiched between layers of protective polyester. it is easily storable, transportable and collectable. The long-term goal is to make Aurum® an everyday currency for consumers on the high street. This might not be as far away as one might think, given that Valuarum has already had conversations at the federal bank level, as the company climbs the chain of credibility. Not bad for a small company. Ghana is in discussion about issuing legal tender Aurum® notes. Aurum® can be purchased as a true monetary instrumental or a bullion product.

Aurum® is not currently sold as a definitive denomination. It is sold in terms of weight of gold contained. This helps avoid any regulator issues with banks and regulatory authorities. There are private mints throughout the world, and Valaurum is simply a private mint that has a proprietary technology. Any regulation, therefore, falls under minting law.

How does the patented process work? First, the company takes very long rolls of polymer film and puts them into a vacuum. Then, Valaurum sprays individual gold atoms that it builds up on the film. Therefore, the company is allowed to control exactly how much gold is put down at a level that far exceeds a conventional foil. The entire gold laminate is structured in 3D, making the notes extremely difficult to counterfeit. Valuarum continues to make “huge” investments into anticounterfeiting. Coins are a “2000 old technology that struggles with authentication;”. The process of authentication in the US is being established, and requires individuals to take their Aurum® to a local coin dealer. However, outside of the States, it’s still a little complicated.

Trexler expects any potential competitors to find it extremely difficult because his company has a “huge first-mover advantage.” The large barriers to entry could put off some.

Valuarum is currently raising US$1M via direct investment to continue to fund the company’s research & development and continued market expansion. Secondly, the company is looking for a “major partner” who will finance a US$2.5M factory expansion; this will “quadruple production output” while reducing costs. Trexler runs a very tight ship on what is essentially a margin product. It’s a battle of balancing production capabilities against gradually increasing demand. The company has been growing within the limitations of it budget and learning the ropes. We are looking for signals of aggressive plans, but this seems to be hampered by the need to operate in the confines of the regulated market.

Eventually, licencing the technology to existing mints will form part of the overall business strategy. in 10-years, Texler expects major mints to want the technology. The battle thus far has been demonstrating market demand & acceptance, and learning how to scale such an idiosyncratic technology. He believes the company is winning the conversation of being a serious mint that is offering a product that consumers will accept.

Trexler is approaching this whole thing cautiously. He is taking his time and is avoiding making any critical errors. How will Valaurum continue to develop? Trexler has got this company off on the right foot, but it will be very interesting to observe how the market grows over the next few years and whether Valarum is able to secure high-profile and profitable deals

What did you make of Adam Trexler and Valaurum Inc? Comment below and we will respond.

Company Website:

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.

Why You Should Own Gold – John Reade, World Gold Council

Interview with John Reade, Chief Market Strategist of World Gold Council.

There is so much momentum in the gold market right now. Other than oil, it is the most traded commodity. Even sub-par gold producers are turning a tidy profit in such a favourable bull environment. Moreover, there has been plenty of speculation that this gold cycle could go on for a lot longer than many are expecting. With that in mind, we decided to get in contact with the Chief Market strategist of the World Gold Council, the global authority on gold, formed 34-years ago.

The World Gold Council’s purpose is to provide market development organisation for the gold industry, stimulating and sustaining demand for gold and providing industry leadership for the entire gold sector. Specifically, the World Gold Council is tasked with increasing the visibility of gold to investors. It is owned by 26 of the world’s largest and most important mining companies around the world.

Matthew Gordon talks to John Reade, 26th June 2020

We recently interviewed EB Tucker, who chastised gold equities and ETFs as dying investment classes in an extremely inflated stock market. Instead, he endorsed physical gold as the ideal candidate for consumer investment in the current climate, because it has no liability and won’t be affected by a potential financial system reset if interest rates turn negative.

Reade provides a similar assessment of the prospect of investing in physical gold. He gives 4 key reasons why physical gold is an investment class conducive to a profitable portfolio:

  1. It is a source of portfolio performance.
  2. It is liquid.
  3. It is a source of returns.
  4. It is a means of diversification like no other.

The World Gold Council does not produce its own global gold forecasts; instead, it consumes the forecasts of others to aid its knowledge of global market drivers, mechanisms and activity. Gold is strategically important for investors, and this is a permanent trait. Gold has been a source of returns since 1971 when gold was uncoupled from the dollar. These returns have similar to or better than most other asset classes during that time period. Average returns since 1971 for gold have been just over 10%. To put that in some context, average returns for American stocks during the same time period have been only marginally higher at c. 12%. Over a 20-year period, gold has performed better than US equities and was only marginally bettered by emerging market stocks. Over the last 10-years, gold has still managed to achieve average returns of around 5%, despite this current bull run in the equities market.

Reade suggests that physical gold should be a permanent anchor for your portfolio, provided you are a long-term investor. Gold is generally uncorrelated to other asset classes, particularly equities, making it a great diversifier that will work when you really need it to, especially in a crisis, where it has an unrivalled inverse relationship with most other markets.

Gold also has a balanced range of drivers: investment demand, jewellery demand, central bank demand and electronic demand. 7% of gold demand goes into industrial applications. 50% of demand goes into jewellery.

Gold = more returns per unit of volatility. The higher proportion of equities (risk) you have in your portfolio, the higher percentage of gold you should have in your portfolio to offset some of the risk. Investors can buy gold coins, gold bars, and they can invest in physical gold ETFs. Futures provide a more complicated way of accessing the gold market. There a large liquid gold futures markets around the world, but they aren’t for everybody. Reade recommends that investors be extremely careful with who they buy physical gold from, especially new ‘gold notes’ that are laminated gold, and have come into the market. The only way of ensuring gold is legitimate is by buying from a reputable organisation. Don’t get sucked into buying counterfeits for a low price. In addition, investors should consider the premium over the spot price that is being requested by the seller. Gold coins can be purchased at a 6-7% premium.

Gold equities aren’t necessarily dead as EB Tucker suggests, but there are all manner of additional pros and cons that investors need to consider before parting with their hard-earned cash. Investors have leveraged exposure to the gold price, along with access to exploration upside, but they also have to deal with the technical risk, jurisdiction risk, management risk, etc. Gold royalty companies have been great success stories over the last couple of cycles, and there is lots of merit in the diversification they provide.

The World Gold Council used to be remunerated by receiving a percentage of profits from each mined ounce of gold, but times have moved on. Now, the company is no longer wholly dependent on revenue from members. Instead, it receives some revenue from funds. The World Gold Council is an entirely unbiased, objective, fact-based source of information. For example, the Chinese and Indian jewellery economies have been hit extremely hard by COVID-19, and Reade expects a very slow recovery.

Why is gold at over US$1,700/oz today? Reade claims that this is simply the intersection point between supply and demand. This is the going rate today.

What did you make of John Reade and the World Gold Council?

Company Website:

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.

Japan Gold Corp. (JG) – Complicated Japanese Lady Attracts 2 Majors

Japan Gold Corp.
  • TSX-V: JG
  • Shares Outstanding: 178M
  • Share price C$0.27 (23.06.2020)
  • Market Cap: C$47M

Interview with John Proust, CEO of Japan Gold Corp. (TSX-V: JG).

A complex Japanese gold mining story.

Japan Gold (TSX-V: JG) (OTCQB: JGLDF), founded in 2012, is a Canadian gold exploration company with a single focus: gold exploration across the three largest islands of Japan: Hokkaido, Honshu and Kyushu. Japan Gold’s portfolio comprises of 30 gold projects that the company regards as prospective for high-grade epithermal gold mineralisation. The company also holds exploration licences and applications that cover around 42 historically producing mining areas. The 3 islands are host to 6 separate epithermal gold provinces, hosting a substantial 70 historically producing gold mines. 5 of these deposits have produced over 1Moz. In fact, Sumitomo’s still-producing Hishikai mine on Kyushu is one of the world’s highest-grade gold mines in the world: it has produced 7.8Moz of gold between 1985 and 2019 at average gold grades of an astonishing 30-40g/t. If Japan Gold’s properties have a similar level of potential, it could be time for gold investors to start getting very excited.

Matthew Gordon talk to John Proust, 23rd June 2020

A positive component of the company is that the technical and geological teams at Japan Gold have in-country experience. Furthermore, another positive is the company’s country-wide alliance with Barrick Gold Corporation (on 28 of the 30 projects); Barrick Gold is obliged to evaluate the properties over the next 2-years, spending US$5M in the first year. On the remaining 2 projects, Japan Gold has secured a JV with Newmont Corp. Japan Gold investors will be hoping that these two majors don’t simply see Japan Gold as an optionality play.

A sizeable chunk of the business model revolves around the idea of a ‘first-mover advantage.’ Despite being a first-world country with a history of gold mining, Japan is a country that has minimal gold exploration since it was suspended around WWII. When the Japan Mining Act was amended in 2012, it afforded opportunities for the first time to foreign mineral companies to access exploration and mining permits. Japan Gold claims to be the first company to seize this opportunity. Will it pay off? Investors will be hoping so; the share price has done very little for the last 5-years. And a lot of money, c$26M has been spent with very little to show.

Investors may be looking at Japan Gold’s numerous land banks as liabilities. Barrick Gold is funding an evaluation programme of the 28 projects for the next 2-years, but in order to access more accretive value, the Japan Gold will eventually need to put its money where its mouth is. While Barrick is always a strong name to be working alongside, and they are working on similar terms to Barrick. However, investors want to know what exactly Japan Gold has been spending investors’ money on so far.

The company has raised a total of C$35M, having raised C$8.5M (C$7.5M new dollars, to pay down C$1M debt) from oversubscribed private placement in the last few months. How much of that has gone into the ground? Since 2012, Japan Gold has spent C$26M on “building the knowledge in Japan, fully establishing (themselves) in the country,” and opening an office in Tokyo in addition to several bases, one in Northern Japan, one in central Japan, one on Southern Japan. While this vast infrastructure spread across the entire country might be attractive to majors, who will not need to set up shop as a consequence, investors might be frustrated that all this money has gone towards infrastructure rather than ounces. Shiny news offices might help a company operationally, but it does very little to reward patient shareholders. Nor do the large salaries and remuneration packages.

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On the other side of the balance sheet, the company has purchased equipment, such a diamond drill rigs, and this equipment has been used, along with C$14M, on developing Japan Gold’s 2 projects outside of the Barrick alliance. We are told the money has been spent on systematic geology, mapping, geochemistry, geophysics and scout drilling. While asset value is clearly a major source of investment for Japan Gold, Proust’s claim that the company has been “very active in the field” isn’t reflected in the share price. Clearly the market is yet to understand the story as told by the company and is waiting for Barrick or Newmont to step up with the goods.

This is a big idea, and a big idea usually means a big overhead, especially for a small company, despite Barrick pushing the operating costs down by 65%. However, Proust says the company’s G&A totals at just C$250,000 per month are reasonable. We can’t agree at this point.

The reality is that Japan Gold needs to get its skates one, quite urgently I might add, and be clearer to the market. Something isn’t adding up as far as retail is concerned. It has constructed a large optionality package for two major mining companies, but what will the C$8.5M be spent on? All of the money will go to the development of the two projects outside of the Barrick alliance. Will that be enough to get shareholders back on side again. We shall see.

What did you make of John Proust and Japan Gold? Comment below and we will respond.

Company Website:

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.

Galiano Gold (GAU) – Turnaround Story. Creating Cash, Not just Mining Ounces. (Transcript)

Galiano Gold Inc.
  • Shares Outstanding: 222M
  • Share price US$1.17 (22.06.2020)
  • Market Cap: US$259M

Interview with Greg McCunn, CEO of Galiano Gold (TSX/NYSE: GAU).


Galiano Gold (formerly Asanko Gold) is a mid-tier gold producer with an operating gold mine in Ghana: Asanko. The mine is owned and operated in a 50:50 JV with Gold Fields Limited (JSE, NYSE: GFI). It is large scale and started producing in 2016, but a recent tactical shift has been something of a game-changer.

Galiano Gold has gone from focussing on building the resource as large as possible to now placing an emphasis on sustainable cash flow and incremental growth through rapid fully-funded exploration. Galiano Gold is also focused on driving its free cash flow position. Shareholders will want to see how McCunn plans to add accretive value to the Galiano Gold mix.

What did you make of Green McCunn and Galiano Gold? Comment below and we will respond.

We Discuss:

  1. Company Overview
  2. The Foundation: Company’s History, Development of the Business Plan and CEO’s Background
  3. Present-Day Mentality: Significant Changes Made
  4. $65M Paid in Dividends: Will it Continue?
  5. Utilising the Free-Flowing Cash: Plans to Continue Value Growth
  6. Cost Cutting and Exploring: What Have They Got?
  7. Conversations with Institutional Shareholders: Any Pressure to Speed Up?
  8. Steady Progression and Ready for Opportunities
  9. Change of Management and Company Name: Why?
  10. Message to Investors: What Could You be Buying Into?

CLICK HERE to watch the full interview.

Matthew Gordon: Greg, how are you doing, Sir?

Greg McCunn: Doing very well, thank you. Thanks for having me.

Matthew Gordon: Fantastic. Well, thanks for joining us. You’re another Vancouver, right? You’re our third Vancouver person today. I should have moved there or something.

Greg McCunn: Yes, as you can see, we are sitting back in the office here today. We have just started slowly creeping back to some semblance to normality.

Matthew Gordon: Well, that’s fantastic. Good. Well look, new story for our audience. We were meant to meet in London. Something came up, which meant that we couldn’t travel. We won’t mention it. We won’t mention the C word. Why don’t you give us a 1-minute overview of the business and then we’ll pick it up from there.

Greg McCunn: Absolutely. So, Galiano Gold. Greg McCunn, CEO, and we are a producing Gold mining company. We operate the Asanko Gold mine. It’s located in Ghana in West Africa. So the mine is a 50:50 joint venture between ourselves and Gold Fields with Galiano as the operator, so we’re paid a management fee to operate the joint venture, and the mine produced about 250,000oz Gold last year at an All in Sustaining Cost of around USD$1,100 p/oz. We are expecting more of the same this year and we can talk a little bit more about our guidance as we get into it. The mine has been in commercial production for about four years. We built this mine and put it into production back in 2016.

Shifting more to the corporate side of things. We do trade on both the Toronto stock exchange and the New York stock exchange under the ticker GAU. I think when we walked into this interview this morning, our market cap was about USD$250M. And we have a reasonable treasury here now. We’ve put together our balance sheet, which is being repaired, which I can also get into. I think over the last year, we’re sitting with just about USD$54M in cash and no debt. So, in reasonably good shape as Galliano Inc.

Matthew Gordon: Fantastic. What a summary that’s perfect summary. I couldn’t have done better myself. We always like to kick off with new companies for this audience who are new to your story and get a sense of how you’ve gone about doing this. I mean first of all; we need to mention the name change in case people get confused. That’s a recent occurrence. We’ll come onto that and the reasons why, but give me a sense of what you originally set out to try and achieve, okay. So, you’ve been in production for 4-years, but there was a bit to it before that point. So, what was the team set out to do? What did you think you’d be able to build and indeed, were you able to stick to that plan?

Greg McCunn: Yes, absolutely. Well, maybe I could just give you just a little background on myself and sort of how I got here, and I think that that does help fill in some of the gaps as well. So, I’m a metallurgical engineer. I spent the first half of my career mostly working in technical and operational roles predominantly in base metals: in zinc, nickel and copper. Mostly with a big Canadian company here – Teck. It was Cominco and became Teck Cominco over the years and is now Teck both in Canada and in Australia. When I started working, my first corporate role was after I completed an MBA and I started working for Placer Dome, which is a big multinational Gold mining company here in Vancouver. It produced 5Moz Gold a year. I was working in corporate development for several years in the early 2000s until we were taken over by Barrick, which is the time when I sort of shifted in 2006 more to working in junior mining and that’s where my career took a little bit of a different turn. I ended up, I find myself as the CFO, if you can believe it, which is an unusual role as a metallurgical engineer. But I find myself as the CFO of a junior mining company called Farallon and we raised a couple hundred million dollars. We built a mine in Mexico. We put that mine into production back in 2008. It was a high-grade underground VMs deposit. And we ended up selling that company to Nyrstar, the world’s largest zinc producer, back in late 2010. And so, from there, I moved on to become the CFO of what is effectively now Galiano.

So, originally the company was called Keegan resources and we were an exploration stage company when I joined there back in early 2011, and we were able to put together a merger with an Australian company called PMI, which we then changed the name of the company to Asanko Gold. We built what’s now the Asanko Goldmine. We raised several hundred million dollars to do that. Put the mine into production and started commercial production in Q1/16. And after a year of operating the mine, I actually left the company and I had an opportunity to become a CEO. And so, you know, one of the reasons that I became a CFO in the first place was I thought it would be a good pathway to eventually to be able to run a company. I took 10-years as a CFO being there, but in a couple of different companies, but eventually an opportunity presented itself. I was to run a small company called Alio, which you may know has been taken over by Argonaut Gold now – a Mexican-based Gold producer with an interesting project in Guerrero, at the same place that I had previously built a mine.

So, about a year ago, I was asked to come back to what was then still called Asanko as a CEO. I think if you about, you know, where we’re headed and where we were seeing ourselves have gone over the last year, one of the reasons I came back was I saw an opportunity to really transform the company from a project-related mine building company into more of a sustainable business. And I think when you look back a year ago, when I came and I joined the company had been the mine at that time had been running for three years. If you look back over those three years, there were some challenging times, but the mine actually produced about $300M in EBITDA over that 3-year period. You know, there’s a good margin at the Asanko Gold mine.

The problem was, and I certainly heard this from some of our key shareholders when I came back, was that, we had reinvested all of that USD$300M, and in fact, most of our treasury back into the ground. And so, the plans that were there in front of us as well, envisioned continuing that investment and that they were going to double the capacity of the processing plant; go from a 250,000oz producer to a 450,000oz producer. It required ore transportation infrastructure, you know, so for the foreseeable future in front of our investors, was that that was going to continue. And, you know, I had questions like, well, this isn’t a real business, you know, you’re just taking all the cashflow that’s coming out of the mine and putting it back into the ground. When are we going to generate some return for our shareholders? And so, we really et about last year trying to change that narrative. And, you know, the company was in a difficult position because it adds very little in the way of treasury. You know, we’d run treasury balance down to below USD$10M, which is awfully difficult to run a mining company with less than a USD$10M buffer in the bank. And as well, we lacked a really credible direction where the mine was heading. We didn’t have a credible life of mine plan. It didn’t envision, you know, a substantial amount of capital. And so, I think over the last year, we’ve been able to rectify both of those things. And we really changed, I think, the narrative at the mine site last year, away from just producing ounces to producing cash. And so over the year, as we wound down our capital spending programs and we were able to start generating cashflow, certainly the rise in Gold price has helped in the last half of the year, to the point where the mine was able to actually distribute, make distributions to its shareholders to the joint venture. In Q4/19 last year and in Q1/20 this year, we distributed USD$65M, so USD$32.5M to Galiano’s account. And more of that is coming in Q2/20. So, I think that has helped fix our balance sheet.

As I said, we’re now sitting with just under USD$54M in cash and no debt. And during that period, we were also able to come up with a plan with our joint venture partner to develop the mine, making the most of the assets that we already have. So, we have this wonderful 5.5Mtpa processing facility. It treats ore from multiple pits on a wonderful land package in Ghana. You know, we’ve now produced a credible life of mine plan that doesn’t envision a lot of capital spending. We’ve got a 10-year mine life here and we published that in February. And so, I think the basis has been reset and now it’s onward and upward in 2020.

Matthew Gordon: I love that. I love that. So that MBA has paid for itself. Congratulations on that. No, but that’s a very important because it’s –

Greg McCunn: That’s an MBA strategy. You didn’t hear that from me.

Matthew Gordon: Exactly, exactly, but it’s really important. I’ve had this conversation twice today already, where you’ve got companies who are looking to reinvest any cash they make straight back in the ground, or by acquisition or further OPEX spend, et cetera. And they’re in the mining business. They’re in the business of, you know, producing ounces. They’re not in the business of making money, which all businesses should be in. All businesses. I don’t care if you’re a sandwich shop or make bicycles or you mine: you have got to make money, and people forget to do that. And that’s a very common thread in a lot of conversations that we have with mining CEOs and investors in the natural resources space, where people forget that component. And I guess that’s where the kind of lifestyle accusation actually gets thrown at some companies. And big producers also forget this. So, I think, if you don’t mind, because you touched upon a few different threads there and I like that big segue from what the plans were to where you are, to the mentality. I think you said at the mine site, as well as make it pervasive throughout the organisation to understand that it’s about making money. So, it’s easy to say, Oh, we kind of changed a few things around, but what did you actually do? What actually changed from then to now because it doesn’t happen overnight?

Greg McCunn: No, it doesn’t. It requires some careful planning, really is what it boils down to you. And, you know, mining is a difficult business. It’s a capital-intensive business. It is an industry where we don’t control the price of your product. So, you know, that makes it awfully challenging through various cycles to be able to run a business successfully. So, you have to understand what’s coming and plan for it. And I think that’s something that over the last year, the biggest shift that we’ve made is, is a way from, again, just focusing on ounces and focusing on trying to generate cashflow at a reasonable Gold price, but bearing in mind that you are going to have to make investments. We do have a tailing storage facility that we need to raise every 2nd year. We do have pits that require pushbacks and access to ore or an open pit mine, but the same would be said for an underground mine where you need to keep up with your development. So, you know, the opposite mistake can often be made where you shift into harvest moon too quickly and you don’t do enough capital spending. You don’t do enough development work to be able to keep the, to really maximize the benefit of your assets in the ground, which is really, I think the objective of the mining company is to make money continuously, but realise that you are also trying to maximize the benefit of what’s a once off natural resource, they have to use the most effective ways to generate profits for your shareholders.

Matthew Gordon: Okay. So, okay. I just love that. Okay. First of all, you’ve also distributed cash back to shareholders in the form of dividends – USD$65M – a not insignificant amount. You kind of set an expectation there. So, we’ll see how that continues. Hopefully it does continue. Is that the plan?

Greg McCunn: You know, we’re starting to build, rebuild our balance sheet now at the corporate level where we’ve received those distributions so that we can, you’re absolutely right; starting to return capital to shareholders and shareholders in Galiano now. We started that process in November where we committed to buying back our own stock. So, we put about USD$3M back into the market, buying back about 3.5M shares over the last four months. So that’s a meaningful start for the first time, to returning some of that capital to shareholders. And as we go forward, you know, as we become more comfortable with our plan, we’ve produced that life of mine plan in February, we absolutely adhered to that plan in the first quarter of this year and we had the best quarter that the mine has ever had. Record production and record low All in Sustaining Costs. And we’re on track for another good quarter in Q2/20. So that’ll be the second quarter that we delivered onto that plan. And I think it’s very important that we keep doing that for the balance of the year so that we can look at a more sustainable way of returning capital to shareholders at the right time, like a sustainable dividend policy, for example.

Matthew Gordon: Okay. But you’ve now also created a problem for yourself, haven’t you? Because you’ve got cash. What are you going to do with the cash? Because if it sits down and does nothing, it’s just cash. So people have expectations about the, well, the optionality, which you’ve now given yourself by obviously restructuring the balance sheet, but sitting there on this kind of free flowing cash machine that you’ve got, but you can’t, you know, $1 is worth $1. What are you going to do with that cash to create accretive value for shareholders going forward? Because you’re a big company now. You are, what are you? USD$250 million, so, you know, you’re up there, it gets harder and harder to grow. So, what’s the plan?

Greg McCunn: Yes. So, I think at this stage, you know, we really, over the last year we had to fix the things that we talked about already before we could even contemplate what was next. And you know, now that we’ve got to that stage where we’ve got a credible plan in front of us, we’ve got really 2 initiatives. And I think the 1st is, you know, the plan that we put together, as I said, making the most of the assets that we have, is very credible. We can deliver on that plan. It’s a decent life of mine plan, but we’re really now focusing on this three to 5- year strategic business plan at the mine. And that’s this planning that I talked about; to be able to consistently deliver free cash flow, you have to be thinking ahead more than just your annual budgeting cycle, and that’s not something that we had actively in place. So, we’ve been really trying to formulate that 3 to 5-year plan, and we’ve got two ways we can make that plan better than what’s in the public domain now. And the first is through driving our costs down. And as I said earlier, you know, mining is a business where we don’t control the price of our product, so you have to be focused on costs. I think our business was set up to be a, as I said, a capital spending business where we were looking to be a half a million ounce a year producer. So, there’s a lot of efficiencies that we can bring this year and we’re targeting and reduction in the All in Sustaining Costs of USD$100/oz, which is meaningful. I know that’s, to put it in perspective, that’s USD$25M a year in operating cost savings.

And so there’s a number of initiatives that are happening there that will involve us potentially reinvesting some capital in certain things, upgrades to some of our processing plants, et cetera, to try and bring those costs down, but predominantly it’s around savings and how we handle materials. So, a very, again, very limited amount of capital required to capture these savings.

But the 2nd aspect we are going to reinvest the money in is in exploration. And I do think that when we’re looking at a plan here with a 10-year mine life, I do sometimes get the comments of, ‘Why do we need to do a lot of exploration when we’ve got 10 years of my life in front of us? You know, why don’t we just get a little further along the track?’ But the reality is the exploration we’re talking about is not just to add years to the backend of the mine, now that will happen. Of course, when you find more ounces and develop more reserves, but it’s really targeted at our three to 5-year business plan and to make it more profitable. So, to have better margins, to try and find out ounces that are more economical than the ones that we have in our mind plan now. And so, as some of our pits get more mature, you know, the ounces get deeper, the pushbacks required get bigger. It’s not that they’re not worth doing, and it’s not that they’re not profitable at $1,300 Gold, but we’ve got a tremendous land package here with the ability to find some more profitable ounces that are close to the mill, that we can get access to in the near term and fit into the mine plan, not at the end, but in 2022 and 2023. And again, just focusing on trying to make the business better, not trying to spend money just to produce nice drill results, but that’ll be a nice consequence of it. And hopefully the market gets excited about it in a macro environment here, but it’s really around making the business better.

Matthew Gordon: Okay. So, you’ve switched the business model into one that understands it’s about making money. So great. I get that cutting costs – absolutely, of course, what you should be doing, but there’s only so far you can go with that. Okay. There’s a point at which the processes are in place and hopefully nothing goes wrong and you can maintain an AISC, which is, you know, whatever target, you’re aiming for: USD$100. As I say, that’s a big deal. It’s a meaningful deal, but there’s a point at which it is optimised and you, you know, there’s no point in spending time optimising any further because it’s just disproportionate returns. Right?

Second – exploration. You are sitting on a large land package. What do you know about what you’ve got at the moment? What’s the potential that’s in there? Have holes been drilled? Have you got data? What do you know?

Greg McCunn: Over the first three years of commercial production, the company really did very little in the way of what I would call meaningful exploration and drilling. But that’s not to say that they didn’t do a lot of work on prospectivity. And so combining the works of the many operators that have worked on this Gold belt over the years into a proper prospectivity analysis or a database of all the layers of soil, geochemistry, airborne geophysics, analysing all those layers of data collectively as one data package is something that we did spend a lot of time on to get ready, to be able to do exploration. And we just never had the balance sheet to commit to being able to do it. So now that we’re there, we’ve got a commitment there for USD$10M for this year.

It is certainly success driven. If we have success, there’s certainly the ability to divert more funds into that. If we see it’s worthwhile. And we’re really looking at three areas of exploration where we see tremendous potential to add to the business case here. First and foremost is over four years of mining, we’ve been averaging about 250,000oz a year including a depletion from the reserve base. And so that’s 1Moz of reserves that are gone, and we’ve never really made any efforts to try and replace those reserves. So, first and foremost, in and around some of the pits where we’re currently mining, we’ve already made the infrastructure investment. We already have roads. We already have trucks, jobs established at the pits, et cetera, very little, obviously we’re mining there now, or we will be in 2021. On some of these, about half of our budget is going into drilling in and around those pits, and so we’re very confident that we’re going to have the ability to replace a depletion in our program.

Right now, we’ve got four drills turning. We’ve got a 38,000m drill program planned. The results are coming in right now. We’re focused on in and around the pits where we’re mining. And we believe that we can replace the depletion with the program that we’ve outlined for 2020 and 2021. So, call it roughly half a million ounces of additional reserves that would allow us to just keep running those pits, to just keep going, to keep mining there, and effectively it pushes out some of our higher-cost ounces in the middle of our mine life.

Matthew Gordon: That is interesting. Was there a another?

Greg McCunn: That was, and in second, we do have one of our main pit, which is where we’ve been mining ore for the last four years. It has been the main source of ore. It has gone through two phases of production. We’ve got a third phase to access there. There is about 600,000oz of reserves, but it does require a fairly substantial pushback. Again, worth doing at USD$1,300 Gold, which is where we stated our reserves. Certainly, very attractive at USD$1,700 Gold, but it does consume some of our cashflow over the period of, it’s scheduled to start in late 2022, and it will take about a year and a half to get in there and really access those reserves. So, what we’re targeting with our second half of our exploration program this year is we do have one particular trend, which we think can be a new deposit. It’s located about six miles or 10 kilometres south of the processing plant. It’s called Miradani-Tontokrom It’s a ground that we acquired from Anglo a few years ago. It’s about a 3km long, 2-mile long trend of mineralization. We’ve got some drill holes into the Tontokrom area in particular. You know, we believe that has a meaningful a capability to defer and implant there for some period of time, which is again, maybe even replace that 600,000oz or push that 600,000oz of reserves.

So really, as I said, we’re looking at exploration on those two prongs of not necessarily elongating the mine life; it will naturally do that but making that 3 to 5-year business plan better. By better, I mean, more active. And then finally, you know, with this land package, there’s 21,000 hectares of ground here. We own the majority of the Asankrangwa Gold belt. That’s where the name Asanko Goldmine comes from, the shortened version of that. And you know, it has largely been unexplored.

We do have these targets that we’re working on this year, that we’ve delineated, but we’ve also got some more green field potential to, you know, what’s going to be our next, as you know, our mine is anchored by 2 main deposits: Nkran in the south and the Esaase to the north of where our 2.4Moz of reserves sit. What’s finding the next out of the Esaase or the next Nkran? So, we are doing a bit of background work on that this year. It’s not expensive work, but it’s more groundwork to prepare for an eventual drill program. So, I think to answer your question, we’re going to be mining Gold here for a long time.

Matthew Gordon: Okay. I guess it comes back to, cash is a wonderful thing. It’s giving you lots of optionality. I’m going to ask the question; I think I know the answer, but do you feel under any pressure whatsoever from any of the institutional shareholders, which you, it seems to be somewhere in the reason of about 60% of your shareholder register, are they asking you to move quickly? Because exploration is obviously, it’s cheap, but it’s slow. I appreciate you are sitting on a large land bank. Do they want you to go and raise some more money, do some M&A and get some scale to what you’re doing? There’s a cost to that. And I think I know the answer, but what’s the conversation with institutions been like?

Greg McCunn: Yes. So, first on the exploration front at the Asanko Gold mine, I think there always is, you know, I think there could be a case for putting more money into exploration, particularly given the amount of cash that the asset is generating. Right now we’ve got a meaningful program where we’ve gone from essentially doing no drilling for a period of five or six years while we built the mine and got into production, to ramping that up to what’s quite a lot of activity, you know, there’s a significant amount of drill core coming out here, four ore drill rigs turning full time with a fifth one arriving. That’s a big step up, and we want to make sure that we, you know, make them make, create the most value that we can from those exploration results. Might we ramp it up further? I suspect it’s probably possible, but I think that’ll be success based. So, let’s see how this first round turns out. We’re starting to get some nice results from some of the drilling already. We’ll be publishing those to the market here certainly in Q3, and there could be a good business case for doing more exploration. You are right.

Now, when we look at what other things might Galiano do, which is, I think where you’re getting to with all of this, is certainly if we go back a year, one of the reasons coming back here was that I did see that we have the potential to create a sustainable business. And by sustainable business, I do believe that in mining, you do have to have more than one asset running. You know, we talked about, the push back at the Nkran pit, the capital reinvestment, we talked about mining being a capital-intensive business, whether it’s open pit or underground, there’s cycles of development capital that need to be spent on operations. And if you only have one mind and you mistime that cycle that coincides with a rise in Gold price, where you are actually putting all the money back into the ground, that can be challenging.

So, you can see that the case to have two or three businesses that are running, where you can plan those cycles properly, you can get generating sustainable cash flow across all of the metal price cycles that are reasonable. And that’s where you can have a sustainable dividend returning capital to shareholders. So, you know, the intention certainly of coming back here was to do that; to create a sustainable business. And we don’t have to be in a hurry to do it. We’re certainly not under any pressure from our institutional shareholders to go and run out and do something. But I think the way we look at M&A is perhaps a bit different than maybe when I went to work at Placer Dom in the early 2000s where, you know, getting bigger for the sake of getting bigger, it was very important because companies traded at 2 x NAV, no one really ever cared whether the mine generated cashflow or not, they just looked to how fast can you build NAV? You know, there was incentive to just continue to do deals, and that’s certainly not the case. And it won’t be the case here. From our perspective, any acquisition that we look at doing, whether it’s a merger, whether it’s acquiring a producing asset from a major would only get done if it makes our business better. So that’s the rationale that we use when we’re trying to look at these things.

Matthew Gordon: Okay. Well, I like the fact that there is a rationale to all of this because sometimes people just, you know, wander from one point to the next, hoping just to survive. I appreciate that you kind of laid out the plan there. I think from what you’re saying, there’s no kind of big moves. This is about getting what you’ve got done, right? Not going crazy with the money that you have got. Again, we see that: when people get money and then they feel they’ve got to go and do something big. But that doesn’t sound like it’s your modus operandi.

Greg McCunn: It certainly doesn’t have to be. I think that’s the point, you know. I think you’ll have to be, in this industry, you know, there are not a lot of opportunities that are available so I think you have to be continuously working on looking at opportunities and sometimes when the opportunity presents itself, you need to be ready. And so that’s more our focus; continually evaluating things, looking at things that might make sense to build out to strengthen our business. And if the opportunity presented itself, I’d certainly think that we’d like to take advantage of that. And I’m thinking we’ve got the capability now, and we’re, you know, we’re positioned with a bit of a refreshed management, a refreshed board of directors, where we’ve changed out some of our key directors, we’ve got a team here who’s looking to build a sustainable business. And so, I think when those opportunities come, and we know they will, we’ll certainly be ready.

Matthew Gordon: That’s interesting. Yes. I had noticed that. Sort of getting a team that’s fit for purpose was important. So, the name change – changing the management team. Are you trying to build a company in your own image? I mean, what’s the thought process here?

Greg McCunn: So the name change, I think, is reflective of predominantly two things: firstly, there is a refreshed board in management here and it is nice to turn the page and it, you know, we think it reflects the change in philosophy away from the messaging of we’re going to continue to invest capital and build the Asanko Gold mine into something, an enormous entity to an entity that’s focused on running a sustainable business and generating cash flow. And that certainly is a shift, you know, changing the name helps change, turn that page in that history. And there’s also an element here though of, we rightly or wrongly named the mine the Asanko Goldmine. As I said, the mine is a 50:50 joint venture now between Gold Fields and Galiano. When the company was named Asanko Gold, and you’re trying to explain to new shareholders that yes, we operate the Asanko Goldmine, but that’s a joint venture and the Asanko Gold Inc is separate, that messaging was sometimes difficult to convey. So, I think this also tidies up that story quite nicely so that if we eventually have more than one asset, you know, it’s clear that Galiano is a corporate entity. We operate the Asanko Goldmine in Ghana, and that’s a joint venture between ourselves and Gold Fields. So, it also tidies that up nicely.

Matthew Gordon: Okay. And again, so what would you say to people looking at this project, and your existing shareholders, I guess they’ve got to be pleased. You had a bit of a dip, like everyone else, in March time, but you’re starting a bit of growth in the share price, but what type of company are people buying into here? You are dividend paying – great. Unusual. But without the kind of growth story to it, you know, the speed at which the growth story actually happens. Do you think the shares can continue, or is it just going to be a steady, steady growth or flatlining going forward? Where does the excitement come from?

Greg McCunn:  Yes, the excitement in terms of the equity valuation as it sits now, I think that there’s still plenty of room to go here. I mean, this is a very strong macro environment for Gold. I don’t think Galiano has fully rerated into that macro environment. I think there were some, you know, the main pushback that we can get beyond, as you say, our institutional shareholder base, you know, if you look at 4 or 5 names, they control 60% of the VA issued in outstanding shares. Those are very stable shareholdings, good supportive shareholders who have been long supporters of the business and really liked the direction we’re taking the company. But how do we get those new names into the business? How do we create an exciting story for what’s coming next? And that’s, I think, still has some room to run, quite a bit of room, in fact.

And I do think that delivering is something that the company didn’t do well over the first three years of commercial production. And I think, you know, we’re slowly recovering from that. Now we have started to see volumes increase on both New York and in Toronto. We started to see a lot more investor interest in the story. And we are still seeing a lot of wait and see, you know; you said you were going to produce a life of mine plan that shows low capital and 10-years of mine life. Let’s see that. Okay. We delivered that in February. And that was only a few months ago. You said you were going to produce this year between 225,000oz and 245,000oz of Gold at USD$1,000oz to USD$1,100oz let’s see you do that for 2020.

And so, we’ve had a great first quarter, we’re having another good second quarter. So, I think there’s an element of steady-steady here; we’ll start to attract some new investment and there will be some excitement around just doing what we said we were going to do. I think in this market, some exciting exploration drill results are not going to hurt. Let’s face it. That’s not the reason we’re doing it but sprinkling on some really nice exploration results on top of what is a story of a mine and delivering into its guidance, I think will be powerful for 2020.

Matthew Gordon: Okay, Greg. Thank you so much for running through that story. I like that, it’s not quite slow and steady, I think that would be a bit unfair, but there is kind of a consistent and robustness to the plan. We like the free-cash flows, obviously, very attractive for anyone. And we look forward to maybe catching up with you and understanding when you start delivering more of these targets that you’re aiming for. And hopefully you can accelerate the exploration plan somewhat.

Greg McCunn: Absolutely. Well, let’s look forward to that success in Q3/20. And yes, thank you very much for having me. I think it’s been a great introduction and I appreciate the time.

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Serabi Gold (SRB, SBI) – 2020 AGM – CEO Summaries 2019 & 2020 Guidance (Transcript)

Serabi Gold PLC
  • TSX: EQX
  • Shares Outstanding: 59M
  • Share price GB£0.83 (16.06.2020)
  • Market Cap: GB£49M

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


We last touched base with Hodgson in May. This time around, he’s here to discuss the outlook for 2020.

Like most gold producers, Serabi Gold is likely to miss it’s guidance for 2020, but not by as much as investors would expect. The company has mitigated the impacts of the market reset and COVID-19 effectively. Sprott is out of the picture, and now the company is debt-free and cashed-up, it can proceed forward with exciting gold exploration at Sao Chico, in addition to creating operational optimisations at Palito and Coringa.

This gold producer has been consistently on the up, but now Hodgson has put his foot to the floor, and Serabi Gold appears to be accelerating into top gear.

What did you make of Micahel Hogdson and Serabi Gold? Are you a gold investor? Does gold mining interest you? Comment below and we will respond.

We Discuss:

  1. 2019 Overview: Great Year for Serabi Gold. Looking at 3 Areas of Progress
  2. Rough Starting 2020, yet Great Results so Far: What’s the Rest of the Year Got in Store
  3. Exploration Potential: Prospective Land Package and Great Possibilities

CLICK HERE to watch the full interview.

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

Mike Hodgson: Very well. Thank you. Nice to speak to you, Matt.

Matthew Gordon: Well, thanks for joining us today. You should be, today, at your AGM, but obviously things are what they are, and unfortunately people can’t get together and your shareholders aren’t able to see you in person. So, you’ve kindly agreed to talk to us, and I guess sort of kill 2 birds with one stone and talked to us about a couple of things. One, 2019 performance and obviously 2020, and what has been happening and what your hopes are for the coming year under the current conditions. So, if you don’t mind, why don’t you give us your rundown of 2019?

Michael Hodgson: Well, you are right, it is the wonder of technology, isn’t it? I mean, yes, we would have been there today. It was always a good day in our calendar. Over the last few years, we’ve had more and more interest with our AGM and had lots of, well, a fair number of shareholders coming along and asking some pretty good, intelligent questions, a good following and sadly this year we can’t do it. But you know, forums like yourself are brilliant for doing that. So, this is an opportunity to meet, to give out more information. Well, a lot of it would all be repetition of what we did in 2019, but it’s a very important moment to sort of reflect on because it was a great year for us. And possibly more importantly, people are going to want to know where we are now and where we’re going, as with many companies. I will come on to that.

But 2019 first: well, you know, as I said before, you know, 3 main areas of progress for us, really with Serabi. The production from two mines ore bodies: Palito and Sao Chico, great year. It was the first time we exceeded 40,000oz in our history. We have been ramping up, not quite making 40,000 for the last four years, but finally we made it in 2019, which was great, and it was our best year ever. We are really pleased with that. So, production went really well. The plant was full. The ore body is working very well. So really, plant loads of operation. So, you know, our push was obviously, where do we go from here? And during the year, we obviously did all that test work on the ore-sorter, which we’ll come on to a little bit. That obviously arrived at site at Q4/19. In the last months of the year, we were basically assembling all of that and it has been a terrific purchase because in Q1/20 this year, it has really helped us, particularly in the second part in March and April,  just after commissioning, it has had some tremendous results. In fact, if we hadn’t had it, we probably would’ve have had quite a poor quarter, but in the end, the ore-sorter was a great way of turning our quarter around.

The back of 2019: so, as well as Palito going very nicely, and Sao Chico, exploration success, we brought in a surface diamond drill rig, a couple of contractors, and we really got our teeth into those geophysical anomalies in and around the mine site. What’s called headframe exploration in and around Sao Chico, particularly. And we did a fair bit of that in the second half of the year. The results didn’t really flow through until the end of the year, but we’re very nicely doing step out drilling at Sao Chico, and I’ll probably talk more about that in the results of 2020, that’s when we get the results. We got going, focusing on Sao Chico in particular. That has been pretty good. And the final part of the 2019 story was really Coringa, which was our, what we call our Palito lookalike down the road, which is going to be probably our most obvious growth strategy. We have our Palito 40,000oz to 50,000oz, and we have another project down the road, which looks pretty much the same. So that means 40,000oz, 50,000oz going to 90,000oz. That’s our plan.

We did a new resource update in 2019 in the first quarter. We did a PEA that came out in September, which showed what we thought, you know: yes, robust 40,000oz, above USD$900 All In Sustaining Costs. 8g/t, 8-year mine life Palito lookalike. We got that out, off the rank on end of Q4/19 last year. And now we have completed an environmental impact assessment on it, and we are very busily doing our permitting, final stage of permitting for Coringa. Hopefully with a view that we can actually start building the plant, assembling the process plant that’s already there in the backend of this year coming, this year, 2020.

So, 3 areas, good production, great exploration start-up, progress at Coringa with permitting.

Matthew Gordon: Well, not only that, your share price moved. It was quite a year for your shareholders.

Michael Hodgson: Yes, sorry, that’s a very good point, and probably the most critical point. Yes, we went from, we had been sort of bumbling along about £0.40p, I suppose. And we had a bit of a dip in May down to about £0.23p, and we had a tremendous recovery in the second half of the year. And I think at the end of the year, we even exceeded, we didn’t quite make the pound, but we got sort of £0.90p and we have pretty much stayed there since. So, we’ve enjoyed a great run in the second half of the year, tremendous on share price. So yes. So, all those, I’d like to see those three things, as well as great marketing and good management got us to where we are today.

Matthew Gordon: Well, like I say, we follow you quite closely. For us, you are one of those sort of turnaround stories of last year, after sort of a, you know, a while of stagnation and, you know, you kind of got yourself over the line and you are getting noticed by people, for sure. I think I would agree – you had a great 2019. A good year for you guys. Is it going to continue? Let’s talk about 2020. It’s been a very difficult start for everyone. There has been a market reset. We’ve obviously got the coronavirus, COVID-19 affecting people’s ability to work. You had a strong start, but how’s it gone since then?

Michael Hodgson Well, as you say, before the virus actually really started impacting in Brazil, we had a very decent January. We then had a bit of a tough February because we had a mill go down on us. But fortunately, that ore-sorter I talked about earlier was really our salvation. The beauty about this ore-sorter is that it takes waste out and it allows the basically high-grade material to go to the plant. It gives you catch up facility in a plant-constrained operation. So, we’ve had a phenomenal March and a phenomenal April; our two best months on record. In the middle of all this virus too, which was pretty surprising. I remember sitting at PDAC in March thinking this, we don’t know how this is going to go. I don’t think anybody thought in PDAC how bad it was going to be, but I did suspect it was going to be tough. But you know, after that March and April; two phenomenal months, and let’s say our best months ever.

So, we finished Q1 with 9,000oz, which is very respectful number, and our target was 10. Our budget for this year is 45,000. It’s actually 20,000oz by the end of the second quarter, we have a stronger second half of the year. I know I spoke to you about three, four weeks ago. You know, we’re not going to be able to make our 10,000oz in that second quarter, but we’re going to, we’re doing well. We are going to probably do about 8,000oz. We’re doing pretty well. And I think all things considered, that’s a tremendous effort.

The reason we’re not going to do that is, what we actually did in anticipation, and with what’s actually happened with the virus. We just started being a camp: we just wanted to get everybody who wasn’t really critical to the operation off the site, just to reduce risk. That allows us to socially distance everybody, people have much better sleeping arrangements, better sort of eating arrangements. We just basically sent everybody out so that people have got space. Just good common sense. So, we’ve got less, we haven’t got the optimal workforce there. We’ve only got, for example, we have a workforce of about 500 people. Normally we’ve got about 350 people at site. We have now reduced that to 250 people. And so therefore it’s unreasonable to expect that we can actually have normal production with that level of people, but those people who are there, they are just purely on Gold production duties, that’s it.

And they are doing a fantastic job. We’ve actually done. We’ve kept people there, the union has been tremendous in terms of cooperation. We’ve managed to have people working much longer stints than they normally would. They want to do this. They want to spend more time at site and then more time away. And we’ve been rotating people through with quarantining. Anybody new coming to site gets tested for the virus. So those of them who are symptom-free and negative, obviously they come in and allow people to leave. So, we feel we can maintain a level of production of about sort of 7,500oz to 8,000oz per quarter. So not as high as we did, but that’s a pretty decent effort all things considered. And I would say we’ve enjoyed, obviously, fantastic economic tailwinds with the Gold price in terms of dollars and in terms of the Real exchange rate.

So, we might not be producing the answers we thought we were going to produce, but we forecast our cash position to be, at the end of Q2/20, to be about USD$6M. And we’re going to see well above that. At the end of Q1/20, we probably had about USD$3M more in the bank. We ended Q1 with USD$9M in the bank, when before we thought we’d have USD$6M. So actually, our cash position is great. And the great news is at the end of this month, Sprott, who have been a fantastic debt partner for us for many years are gone. They are out. Finished. We are debt free, completely debt free. So, we’re going to be a company going into Q3/20 debt-free.

We also managed to renegotiate the purchase of Coringa in smaller parcels rather than actually paying the trigger payment of the outstanding USD$12M that we still owed them to finally purchase all of Coringa at the end of March. We renegotiated that.  We are paying them in $500,000 payments per month, which would go up to USD$1M a month in July, but that’s very affordable with our current level of production, et cetera.

So, it’s, you know, it has all worked out quite well. So, we’ve managed to sort of tidy up the balance sheet. We’ve probably got about USD$2M more in the bank than we thought we were going to have. We might not have the ounces of production, but we’re getting better money for the ounces that we do produce. And we do feel that we can actually continue as we are for sort of 2000oz, 2,500oz a month – so 7,500oz, 8,000oz quarters in Q3, Q4  well, you know, one would like to think we can do a little bit better and things will begin to, we can man up a little bit more and get back to a more normal quarter in Q4/19. So, whilst we might not reach our guidance, as I said before, we’re hopefully going to make a pretty decent stab at a good proportion of it.

Matthew Gordon: Okay. That’s fantastic. Can I ask you about a couple of things you said though? Because I’m intrigued. First of all, congrats on being able to continue to work and putting the plans in place to have most of your workforce able to work and, you know, and you say 8,000 versus the 10,000 is a pretty good effort all things considered. But the 2 things I want to talk to you about are, one: how important is the exploration component to what you’re doing?

Michael Hodgson:  Well, we stopped exploration about a month ago, that was surface drilling. And that was with a contractor. And again, that was kind of, reluctantly we had to do it, but we just needed the space and they come and go, we just couldn’t have people coming and going to the site. We basically wanted to isolate the site and keep it safe. So, our sort of priority was with our workforce. We said to the exploration contract, look, unless you are prepared to keep your guys there for a longer duration, like we’re all doing you know, they can’t come and go. And they wouldn’t do that. So, we said, okay, well let’s just down tools on the surface, we have kept the underground drilling going in fact, with short breaks, and the underground exploration is back starting up again now. So that’s good. And that’s going now.

Sao Chico in particular, it’s not just about going out along strike east and west, which is what we were doing, but going down, which looks tremendous. That’s something that we can continue. So, we actually have got the exploration drills underground, turning again, and they are doing the down dip exploration beyond the mine limits, actually in the mine. So, whilst the surface part is parked the underground part will continue. And you know, you are right; I mean, I was very reluctant just to sit and stop exploration and just mine for sort of 3 to 6-months. That’s ultimately going to come back and bite you. So, we didn’t want to do that. So, we’ve got at least the underground drilling going again, which is great.

Matthew Gordon: Okay. So that’s something. And then the reason I ask that is because obviously I think people in the market understand the concept of, you know, you’ve got Palito, and in Coringa you’ve got Palito 2. You have doubled, or are potentially doubling, the size of the company because they are both high-grade, underground. You know what you’re doing. I’m intrigued by the land package that you’ve got because potentially, that’s where a lot of upside can come through the trail. But when do you think you’re going to be able to kind of get back into that properly with some kind of a vengeance and with the new cash that you’ve got, do you plan to ramp that up as well?

Michael Hodgson Yes. Well, what we did do, what we stopped in May or April was the surface drilling, which was particularly…, our exploration over the last 6-months has focused in three areas. It’s been step-out drilling at Sao Chico, principally, where we’ve got this whole sort of, you know riches of geophysical anomalies, ore satellites in and around Sao Chico. Sao Chico itself is a geophysical anomaly but looks quite poor compared to the ones in and around it. So, we’re obviously very excited about those. And we did start intersecting sulphide mineralisation at Sao Chico before we stopped. And then we have just got a bit of a tiger by the tail there, so that’s absolutely brilliant. And we’re drilling the gap in between the two, so that’s fantastic. That’s the bit that’s all to play for. It’s parked for the time being, but we’ll get back into that in no time. And that’s fine.

One thing we were able to do though, was we were doing a big regional geochemistry program. And that’s not specialised labour. That’s our guys, we just have field crews just doing, you know, it’s donkey work really, but it’s really fantastic work. They just sit there taking ore samples over the entire area. And we finally, after that six months hard work, produce those, if you remember; three weeks ago, those maps. Really great geophysical maps, which show geochemical sort of contours on top of the geophysics. So, we can see how that great big geophysical anomaly bridges between Palito and Sao Chico. We’ve got a great big booming magnetic geophysical anomaly with lots of electromagnetic geophysical knowledge. And now we’ve got a beautiful big 100, 200 PPM Copper anomaly over this.

Now we all know that the Gold that we have at Palito and Sao Chico lives with the Copper. So now we’re doing sort of follow up Gold on all of those, and we can do all this work in the background while all of this drop down is going up. So, what we’re doing is we’re actually moving forward with all the geochemistry, and really homing in on the best target areas so that when we do actually come back, they will be drill ready and we can actually start drilling the targets. So, we’ll have a coincidental geophysical anomaly, geochemical anomaly, and then we drill it. And we’re obviously pretty excited about some of the ones we talked about a few weeks ago, which were on that big belt that you’ll see between Palito and Sao Chico.

Matthew Gordon: Well, you certainly did sound quite excited about it when we went through it a few weeks ago, was it three weeks ago? Because I think the potential there is to really, to, you know, develop the land package that you’ve got, quite inexpensively at this point, whilst obviously getting Coringa up and running.

Michael Hodgson: Well, I think the thing that is compelling about these anomalies is, I know they are early stage and people sort of go, oh, you know, they are only geophysical anomalies, but everything that’s discovered starts off as an anomaly. That’s what the base of this is. These look they’ve got such signatures, similar to Palito and Sao Chico. I mean, that’s the great thing: we’ve got templates, you know, we know what Sao Chico looked like as just an anomaly before we started mining it and look what the hell it is now. It’s a great deposit.

We’ve got these ones like Calico and Juco, which are immediately to the south of Palito, they are 5km away. I mean, that’s nothing. That’s a road to our process plant.  Easy, easy. They are high priority because of where they are. And you know, if we get a, say, some hits there and we can actually go to another 2,000oz, 300,000oz resource and with all these different satellites, they add great value. We can very quickly turn exploration success into production ounces.

And this whole exploration effort that we’re doing at the moment is because we know, with planned constraint, the ore-sorter is going to free up some place in our process, some space to, you know, for the next step, but it’s not going to be the solution to all of our problems. It’s going to buy us another 10,000oz basically, at this stage, that’s it. So, we can make our little plant go from 40,000oz, 50,000oz, which is great, a great bottom line, you know, additions to us, but where do we go from there? Where do we go from there? That’s the next question? You know,

I’m absolutely convinced that our tenements hold much more than 50,000oz worth of Gold per year, without doubt, without any doubt whatsoever. The question is, where? And so therefore, what we have got to figure out is, okay, all these sorts of central riches that we actually have, you know, how big are they and where are we going to process it? Because we are going to, you know, you asked the question: obviously, Sao Chico keeps growing. Do we put some kind of processing down there? If these two ore bodies that we’ve got near around Palito are coming to, or have the prospects to become ore bodies, do we put a slight expansion at Palito? It’s a wonderful problem to have.

We’ve actually got, it’s pretty interesting because we’ve got a plant at Coringa that’s too big for Coringa and we’ve got a plant at Palito that’s too small for Palito, or we haven’t got a plant at Sao Chico. And what we’ve got is resources everywhere, potentially. And then just kind of figuring out what’s best to put where and when. So, but I think it’s a nice problem to have. I think we’ve got great upside in all of them. And it’s just a case of doing it in the most logical way that makes most sense to shareholders, which means we can build our company with as much cashflow as possible and as little sort of borrowing and dilution than we’ll ever have to do. And that’s what we’re trying to do.

Matthew Gordon: Well, as you say, Mike, some nice problems to have. It’s a nice environment to be working in. You’re building up the cash position. You are debt free. Things are looking better for you. I know this is part of your AGM discussion. So, from me, congratulations on last year. I really liked what you did there. You have got a good team. They seem to know what they are doing. This year, we look forward to hearing more of the same please, I think would be the call from the shareholders, but I’d just say for anyone listening to this, please send us your questions that you’d like to ask, because I’m sure we’ll be speaking again soon to Michael, or I hope we will. Or indeed, send them directly to Mike at Serabi Gold

Michael Hodgson: There is the opportunity. If anyone has got questions, please come back to us, we are always willing to talk through with interested shareholders what our plans are.

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