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

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

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

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

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

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

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

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

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

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

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

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

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

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

Equinox Gold Corp.

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

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

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

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

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

Assets

Equinox Gold has a promising portfolio of assets:

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

Our Interview

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Search Minerals (TSXv: SMY) – 10 Years: Anything To Show For It?

The Search Minerals Logo.
Search Minerals Inc.
  • TSXv: SMY
  • Shares Outstanding: 230.7M
  • Share price CAD$0.05 (21.02.2020)
  • Market Cap: CA$10.4M

We recently sat down to interview Greg Andrews, President and CEO of rare earths company, Search Minerals (TSXV: SMY). He answered a lot of difficult questions. Investors will need to watch the video to decide if they think he answered them well…

We discussed several topics, including:

  1. Rare Earths? What Are They And What Are They Used For?
  2. Raised CAD$20M, worth CAD$10M. What Happened?
  3. Struggling To Fill A CAD$500,000 Private Placement: Has The Market Had Enough Of Search Minerals?

This is an important interview for investors to watch, especially for its educational exploration of critical rare earth elements (CREEs).

Company Website: http://www.searchminerals.ca/

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.

The Search Minerals Logo.

MOGO Finance Technology Inc (TSX: MOGO) – Making Investors Money By Saving People Money

MOGO Finance Technology Inc.
  • TSX: MOGO
  • Shares Outstanding: 27.5M
  • Share price CAD$3.40 (21.01.2020)
  • Market Cap: CAD$93.5M

We recently interviewed Greg Feller, President of Canadian fintech, MOGO Finance Technology Inc. We discussed some very interesting topics:

  1. The Battle Of The Banks
  2. Carbon Offset Cards
  3. Saving Young People Money
  4. Big Plans For The Future

This was Crux Investor’s first interview with a fintech. We found Mogo’s business model intriguing, but we have some question marks surrounding certain areas.

If Feller can pull this off, he’s going to make his investors some serious dollars, and all while saving customers many dollars of their own.

Company Website: https://www.mogo.ca/

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.

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

A photo of Pan African Gold CEO, Cobus Loots.

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

A Decisive, Ambitious Team

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

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

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

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

The key highlights from the update?

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

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

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

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

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

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

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

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

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

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

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

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

A photo of Pan African Gold CEO, Cobus Loots.

Harvest Minerals (LON: HMI) – There Is More To Invest In Than Mining

An aerial photo of a Brazilian soybean field being harvested. There are 2 Crux Investor logos added.
Harvest Minerals Ltd.
  • LON: HMI
  • Shares Outstanding: 185.84M
  • Share price GB$0.37 (12.02.2020)
  • Market Cap: GB£6.88M

Recently, we interviewed Mark Heyhoe, Chief Operating Officer for Harvest Minerals, an AIM-listed organic natural fertiliser producer located in Brazil. CLICK HERE to watch the full interview.

Crux Investor has previously investigated potash investment, but this one is a little different. Harvest Minerals says it has a unique fertiliser product: KPfertil. Heyhoe claims KPfertil has significant cost, production and technical advantages; let’s unpack them.

  1. KPfertil is much easier to produce than many other fertilisers. It is found at surface in the form of a heavily weathered rock/lava. The only processing step required is for the material to be crushed. The conventional crusher appears to be a relatively inexpensive overhead. Once crushed, KPfertil can be applied to soil to enhance crops.
  2. At surface means KPfertil is cheaper to produce than conventional fertilisers. Heyhoe quotes a current production figure of around US$18 per ton, with a reduction to US$7.50 once Harvest Minerals scales up their operation. This is good news for farmers: Harvest plans to undercut the competition.
  3. KPfertil claims to be considerably more environmentally friendly than other fertilisers, given its organic, natural properties. The modular plant allows for more simple production than more conventional fertilisers: the product is excavated, trucked, homogenised, crushed, then is ready to sell. This is far less environmentally impactful courtesy of the simplified, more energy-efficient process.
  4. Heyhoe says KPfertil has some interesting consumer advantages. With KPfertil there is no leaching, the loss of water-soluble plant nutrients from the soil, due to rain and irrigation, which can reduce the yield of crops significantly. KPfertil goes straight into soil and stays there for longer than other fertiliser options. This is means farmers use less fertiliser and therefore save money in time and product. Studies have shown the remineraliser releases phosphate and other nutrients into the soil in a more gradual way, finding that it was over ten times as effective as TSP in sandy soil after 80 days.

So, what does their business model look like?

Harvest Minerals has performed “extensive” trials in order to the get the product registered; there have been numerous trials performed on KPfertil’s primary markets, such as coffee, sugar cane and maize. Last year, Harvest Minerals produced 50,000t of KPfertil for potential customers to test on their crops; now they have to wait for the reaction from the farmers testing the product.

A photo of some budding plants with a hand placing fertiliser around them.
A long way to grow…

In June 2018, Harvest Minerals had cash and had conducted trials efficiently, but they were missing something; the market wasn’t listening to their story. The company was offered a distribution deal by a local operator that Heyhoe says looked strong on paper. However, disappointing sales figures by their chosen sales partner left Harvest Minerals with a decision to make. They decided to bring sales in house and now have 10 salespeople and a sales manager covering the area. It’s hard to tell if that exercise has delayed their sales efforts in the market or whether it’s just slow getting traction in Brazil at this level. We appreciate it can take time to establish relationships and build trust in a new market, and a few more salespeople on the ground would have helped.

A recently financed 320,000t per annum processing plant is clearly under-utilised, because the testing period by local farmers means smaller orders until they are confident of the product. Even when they are confident of the KPfertil product, the farmers still have relationships with other sales forces and fertiliser companies. This is similar to the pharmaceutical industry: it takes time and the competition won’t let up. Hayhoe defends the decision to spend the money upfront to build a plant of that scale. The cost to build is around US$1M, with the hope that sales dramatically improve once the results of this year’s growing season are in.

The buying season for fertiliser is May to December. Heyhoe may be correct about the order in which they chose to spend their available cash. Current cash to hand is c.$5M and given current plans and the relatively low overheads and burn-rate should not need to go to market to raise more money anytime soon. It rests on how quickly the farmers and grouping groups take up KPfertil and how the competition responds.

The main difficulty with selling KPfertil is inherent in the nature of the market itself. While Harvest Minerals claims Brazil has the world’s fastest-growing fertiliser market, the simple reality is that local agriculturalists were unwilling to risk their entire harvest on an unfamiliar product; normal, prudent, and not alarming. The demand could be there, with 4.5M hectares of potential agricultural land between their operation and the nearest major Brazilian airport.

Heyhoe explains the company currently sells c. 50,000t of KPfertil per annum, to around 70-75 customers. Their largest customer constitutes 9% of total sales. In addition, Heyhoe says there have been ‘positive indications’ that farmers will move to 100% KPfertil use. The number of customers and quantity is unknown. Hayhoe is unwilling to speculate or give guidance as to what they are targeting: a major frustration to Harvest Minerals investors.

Harvest Minerals is waiting for a permit, and the management team is currently working on upgrading storage capacity so that it is more in line with the company’s production capability.

It is very early days, but the share price has seen little movement. We will continue to follow this story closely to see if they do what they say and to see how their competition reacts.

Company Website: http://www.harvestminerals.net/

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

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

An aerial photo of a Brazilian soybean field being harvested. There are 2 Crux Investor logos added.

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

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

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

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

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

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

That brings me to Salazar Resources.

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

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

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

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

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

A diagram of a VMS deposit.
A VMS deposit diagram

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

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

So, what does this mean for investors?

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

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

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

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

Serabi Gold (LSE: SRB, TSX: SBI) – Double the Fun

A picture of a man wearing a suit in a grey room. He looks at a laptop and dollar bills are flying out towards him. He smiles with his arms raised triumphantly.
SERABI GOLD PLC
  • LSE: SRB
  • Shares Outstanding: 58.91M
  • Share price: GB£0.77(15.01.2020)
  • Market Cap: GB£45M

There is no doubting the last few years have been tough for gold mining explorers & developers, and mining investors. However, gold producers have seen an uptick in share price since the end of August 2019 and the price of gold emerged from the $1,200 doldrums. Some gold producers have done better than others and have broken away from the pack. Serabi Gold looks to have safely made that cut by more than trebling their share price since the lows of May 2019.

Serabi had a quiet if unspectacular time until mid-2018 until May. A small, high-grade, high-cost, underground South American mine doesn’t usual capture retail investors’ interests, but it was consistent in its output and didn’t encounter any production problems. However, despite having an experienced and lively management team, they were loaded with debt, low margins (if any), and were unable to raise funds cheaply; there were lots of reasons for investors to look elsewhere.

The big move in May was due the market finally seeing the data from the acquisition of another underground gold asset, Coringa Gold Project, which is near their core project, Palito Mining Complex. A break in the gold price in August saw a further resurgence of interest in Serabi Gold and in the share price. In addition, it became clear there could be an opportunity to restructure their debt. Investors became very interested.

The acquisition of Coringa is the game changer for Serabi. Not only will it reduce their AISC to nearer the magical $950 mark, but it also will double their production to c.80,000 oz pa. This small, sleepy gold producer is suddenly on the radar of institutional investors, which should drive volume of trading and solidify the shareholder register.

Today’s record production news caps off a great 2019 for Serabi. The company achieved its highest quarter gold production of the year, 10,223oz. This brings the total annual gold production to 40,101oz, a 7% improvement over the course of 2019.

The total mined ore for Q4 was 44,092oz, at a high-grade of 6.69g/t of gold. 44,794t of run of mine (ROM) ore was processed through Serabi’s plant (combining the Palito and Sao Chico orebodies) at an average grade of 6.81g/t. On the exploration side of things, a sizeable 2,908m of horizontal development was completed in Q4. Serabi has managed to optimise its assets at little detriment to its share price or cash position: the company sits at GB£0.78 on the LSE today (moving back towards 2019’s peaks of GB£0.89), and claims year-end cash holdings of US$14.3M.

In terms of infrastructure, Serabi has also seen great improvements; chief of them is the installation of an ore sorter (sited between the crushing and the milling sections), which entered its final stages at the end of 2019, beginning electrical and mechanical testing. Investors should take note of this. Based on similar ore sorter data, this could improve productivity by as much as 20%. That is significant economically.

A screenshot of a diagram of a sensor-based ore sorter.
A sensor-based ore sorter

Serabi’s step out drilling campaign at Sao Chico has significantly extended the resource beyond current mine limits. A projection of full year production for 2020 stands at 45-46,000oz: a further improvement on an already strong figure as systems continue to be optimised. Serabi Gold has been positively moving along with consistent results.

Rough Assessment Of Serabi’s Current Debt Situation

Serabi currently owes c.USD$12M to Equinox Gold Corp. and c.USD$7M to Sprott Resource Lending Partnership, which it agreed to pay back over 22 months, (30/09/18-30/06/20), in addition to providing 145,479 new ordinary shares of £0.10 each (a 10% discount to the closing price on 14 September 2018).

The company is going to need to give guidance as to how it plans to restructure this. We would imagine Sprott would roll over as Serabi has been consistent with their debt payments. There is cash in the bank to pay back Equinox, but either that gets deferred at the deference of Equinox, which we think unlikely, or Serabi replaces that with cheap debt, serviced by their much-improved net cash production. If this indeed proves to be the case, Serabi holders will not be diluted and should be satisfied with how management has performed for them this year. The big question is how many will take the opportunity to cash-in and who will replace them? I suspect that this is now attractive to institutional gold funds.

The Palito Mining Complex, a high-grade, narrow vein underground mine, is already producing good results with an AISC of US$1,078 per ounce. However, Serabi’s aim to bring that figure down below the $1,000 mark. This is where the Coringa Gold project comes in. Serabi acquired Coringa from Anfield Gold Corp. in December 2017 for US$22M, and they have plans to get in to Production by end of 2021. Coringa is far more than an option: the team at Serabi feel it has an almost identical setup to Palito in terms of geology, size and necessary mining operations.

An aerial drone shot of the Coringa Gold Mine in Brazil.
Coringa Gold Mine

Coringa has a higher grade than Palito, at 8.34g/t, with a total gold production of 288,000oz, and a life of mine standing at around 9 years. Typical fully-operational annual production should stand at 38,000oz. Corringa would require an initial capital investment of around US$25M prior to sustained positive cash-flow, followed by sustaining capital expenditures of around US$9M that would likely be funded by project cash-flow.

To continue developing Coringa, I expect to see a revised PEA to whet the market’s appetite. Once Coringa is up and running, an annual production average of 38,000 oz pa, in addition to an AISC of US$852, could create a quarterly net revenue of c. US$2.5M within 12-18 months. When combined with the US$1.5M of stable cash flow from Palito, Serabi Gold could be churning out a net profit of US$3.5M per quarter for years to come, and this is without Palito’s ore sorter’s impact on results being taken into account.

The sense in the market has always been that Serabi will aim to be a 100,000oz per year gold producer in the not so distant future; institutional investors will likely push for further acquisitions, as mentioned in a recent Crux Investor interview with Nicolas Banados, Managing Director of Family Office Megeve Investments and investor in Serabi Gold.

To conclude, Serabi is performing well. It has a clear plan to create a business with a cross-mine AISC, production level and revenue that investors will welcome. With permitting at Coringa continuing to progress (the date for the public hearing is set for 6 February 2020), this ambition is moving closer to reality, and assuming public and stakeholder support, this is the solid final step for Serabi before receipt of the Licencia Previa (the Preliminary License). My message to the company is more of the same please with both assets; show us success with the drill on your exploration targets. We are watching.

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

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

A picture of a man wearing a suit in a grey room. He looks at a laptop and dollar bills are flying out towards him. He smiles with his arms raised triumphantly.

Contact Gold – Big Plans. But Will Need Cash Soon to Deliver Growth (Transcript)

A screenshot of the popular 'Gold Miner' game.

Interview with Matthew Lennox-King, President and CEO of Contact Gold Corp. (TSX-V:C)

Contact Gold Corp. is a TSX-listed gold exploration company focussed on making district scale gold discoveries in Nevada. Contact Gold Corp. has extensive land holdings, predominantly on the renowned Carlin Trend, in addition to the Independence and Northern Nevada Rift gold trends, all of which host a ubiquity of gold mines and deposits. Contact Gold claims these areas offer ‘world-class’ access to gold. Contact Gold’s holdings are 217km2 in size. Projects range from early- to-advanced-exploration, and resource definition stage. Contact Gold Corp. is “100% focussed on Nevada and high-grade oxide gold” all at surface.

Contact Gold Corp. started the year with a share price of CAD$0.37. The market performance throughout the year has been poor, falling almost constantly (despite slight rallies in June and August) to just CAD$0.17 today. In such a good year for gold, Explorers and Developers have failed to capture this upside or indeed the imagination of prospective investors or existing shareholders. Contact Gold Corp. has a market cap of CAD$14M.

Lennox-King attended the 121 conference in an attempt to “raise the awareness profile of the company;” after all, Contact Gold Corp. has only been around for 2 years and lacks exposure in Europe. Contact Gold Corp. is at a very early stage in its development cycle. Contact Gold Corp. is looking to capitalise on a “looming lack of supply” in the gold market presumably from mid to large caps looking to building their inferred category.

Lennox-King states the company currently sits on CAD$1.2M, and has capital from institutional investors to push the project forward for the next year. Shareholders will be hoping for some kind of return soon as Contact Gold Corp. builds its knowledge of what it has. Lennox-King states Contact Gold’s USPs are the strength of its assets and the excellence of its team. The assets have a +2km of strike length with multi g/t gold at the surface. Their plan is a tried and tested formula.

There is nothing revolutionary about Contact Gold Corp.; the extensively experienced management team stands out a little from the abundance of gold juniors in Canada and internationally, but there needs to be more before investors can get excited. Lennox-King pushes the favourability and stability of the mining constituency (Nevada) along with particularly prospective geology as a further reason to believe. There is however an exciting fact about Contact Gold. In terms of remuneration, company directors receive zero cash remuneration and instead receive DSUs. This keeps more capital in the company. Management draws a salary, but Lennox-King claims to have effectively paid his own wage, as he put over CAD$1M of his own capital into the company in 2017. Lennox-King has a “way to go” before he gets close to getting his million dollars back. It’s a similar story for the remainder of the management team.

What did you make of Matthew Lennox-King? Is Contact Gold Corp. any different to other juniors? Are you a fan of the remuneration strategy? Comment below, and we may just ask your questions in the near future.

We discuss:

  • UK Investors Interested in Contact Gold
  • Company Overview
  • Business Plan and What They’re Aiming to Achieve: What Have They Been Doing for the Past Two Years?
  • Cash Position: Burn Rate, How Much They Want to Raise, and How Will They Use it?
  • What Makes Contact Gold Different From the Rest? What’s Their Future Like?
  • Team Remuneration
  • Working with the Board Members: How do They Work Together?

CLICK HERE to watch the full interview.

Matthew Gordon: Welcome to Crux Investor, we’re here today with Matthew Lennox King, he is the CEO of Contact Gold. How are you, Matthew?

Matthew Lennox-King: Very well, thank you. How are you?

Matthew Gordon: Two Matthew’s in the room. It’s dangerous. Right, so you’re here for the 121 conference in London. What are you hoping to achieve?

Matthew Lennox-King: Essentially increase the awareness profile of the company. So, we’re still a relatively new business. We have been around for two years. And while we have marketed somewhat in Europe, we’re still relatively unknown. It’s really for the profile.

Matthew Gordon: Have you got investors over here?

Matthew Lennox-King: We do. We do. Rougher, so they’re one of the funds here in the city. They own about 10% of the company.

Matthew Gordon: Very good. And how did that come about?

Matthew Lennox-King: So, I’ve known John Wang, the PM there for quite a long time. And really, he’s followed the team. He’s followed some of the things that we’ve done in the past. And essentially was looking for more Nevada, gold exposure.

Matthew Gordon: Ok. So, he’s back in the jockey. So, why don’t we kick off with a one-minute summary for people new to the story and we’ll take it from there.

Matthew Lennox-King: Sure thing. So, as I just said, Contact is a relatively new company. We were founded in the middle of 2017 based on a relatively large deal with a big mining focused private equity group out of Toronto. So, we brought the team and the capital, they brought the asset. They remain our 38% backer and we’re 100% focused on Nevada and high-grade oxide gold essentially at surface.

Matthew Gordon: Right. OK. So, you’ve been at it two years. What have you managed to achieve?

Matthew Lennox-King: We have managed to make some very high-quality oxide gold discoveries. We’ve been able to consolidate a land position in excess of 100 square kilometres right in the heart of Nevada’s Carlin Trend, to call it ground zero for gold exploration and production in Nevada. We’ve been able to really round out our shareholder base to where we have a number of both private equity and traditional buyside institutions backing us for the longer-term venture.

Matthew Gordon: OK. So, give an understanding of what your plan is. What’s the business plan here? How are you going to deliver it? Because two years, $10MIL market cap. I want to know what’s going to make this thing start moving, start ticking.

Matthew Lennox-King: Absolutely. So really, when we look at the exploration space, when we look at the gold business, we see a looming lack of supply. We see a lack of high-quality advanced projects. We know that with the team and the asset base we have while still exploration stage, that we have the ability to take something that is, yes, relatively early stage, make discoveries, develop those into resources and high-quality ones at that. With the backers or the Partners, we have, be it Waterton or some of the funds and our own capital we have the ability to both finance, which is obviously key, and drive those discoveries and deposits forward.

Matthew Gordon: So, how much cash have you got at the moment?

Matthew Lennox-King:  We’re currently at about $1.2MIL Canadian. Current shareholders equate for roughly 65% or chunky shareholders equate for about 65% of current issue and outstanding.

Matthew Gordon: You expect them to follow their money?

Matthew Lennox-King: We do. Yeah, that’s certainly been the pattern and certainly been their intention.

Matthew Gordon: Again, coming back to this model thing, it’s a fairly conventional plan that you’ve got there. You’re drilling, building out a resource. Hopefully the market reacts to that. Go raise some more money. That’s the model.

Matthew Lennox-King: Simply put. There’s nothing revolutionary there.

Matthew Gordon: Definitely nothing revolutionary there. So, why would people pay attention to your story versus… there are a lot of gold stories following a similar path. So why should people pay attention to you?

Matthew Lennox-King: Sure thing. And it’s a great question. And I’ll preface my answer by saying I agree there are far too many gold companies out there, certainly far too many gold exploration companies and far too many Canadian gold exploration companies.

Matthew Gordon: There are a lot.

Matthew Lennox-King: There are hundreds, nearly thousands. So, for us and why I think someone would be inclined or should invest in Contact Gold, one is the track record of the team. So, a number of us come back from the frontier gold lineage, if you will. So that was the discovery and ultimate sale of the company to Newmont back in 2011. We have George Solomous of Integra Gold Fame now doing an extra exceptional job at Integra Resources. Our chairman is John Doorward, who has a very long track record at Rock’s Gold.

Matthew Gordon: We like that story.

Matthew Lennox-King: It’s a great story. Not only creating value through transactions, but also building a high margin mine that prints cash.

Matthew Gordon: OK. So, you’ve got a good team, and I know that’s point one and you’ll get on to some more in a second, but you don’t always hit it out of the park. So, there must be more to it than that.

Matthew Lennox-King: Sure. And so, part of it’s the team. Part of it’s the assets. So, we’re in Nevada. I know we were just singing the praises of Rock’s Gold, but we’re not in Burkina Faso. We’re not in Mexico. We’re not in Chile, Peru, Argentina. So, there is that really that stability. There is logical, systematic permitting in place and a real understanding, a need for both exploration, but also mining development. So, it’s sort of the cultural aspect is there, the regulatory aspect is there coupled with really perspective geology. So even though gold mining has been taking place in Nevada really for well over a hundred years, they produce well over 200MIL ounces. There are still really meaningful discoveries being made to this day. And that’s not a million ounces. That’s 5, 10, 15MIL ounces. And those are made by seniors and juniors alike.

Matthew Gordon: OK. What else have you got?

Matthew Lennox-King: Well, we’ve already gotten started. So, we have a team. But on those large land positions that we have sort of 100+ square kilometres. We’ve taken our targeting methodology, which is not revolutionary, but is very systematic. It’s very comprehensive to really mitigate the risk upfront. So instead of taking a rock sample and saying we’re going to drill here, we’ve done extensive mapping campaigns, structural campaigns, multiple geophysical campaigns looking so far as age dating ore rocks through fossil analysis. And all the rest so really building up the weights of evidence. And in the cases where we have tested those targets, we’ve had fantastic success. A gram over 90 meters type thing. So, we’ve seen that this is very effective and we’ve advanced the project to the point now where in 2020 we can really be much more aggressive, chasing these targets.

Matthew Gordon: OK. So, I want to come back to the money side of things because for companies of your size, it’s all about the money. So, you’ve got your 65% of people holding a lot of big positions here. You assume they’re going to follow their money, right? So, do you think the things that you’ve just told me are enough to get the rest of the market interested in financing you? Are you quietly confident that come Q1, you can raise your 5, 6MIL bucks?

Matthew Lennox-King: Yes, I am.

Matthew Gordon: And why do you say that?

Matthew Lennox-King: Really through the extensive marketing that we have done, so while we are small, while we are new, myself and the rest of the board management, we do have those deep relationships on the investing side.

Matthew Gordon: Institutional?

Matthew Lennox-King:  Institutional. To run our business, we’re a little bit over a million Canadian per annum since listing fees, auditors and legal fees of all the rest of it. So, it’s quite lean, quite mean, certainly in this day and age. So hypothetically, $6MIL Canadian raised, that equates to roughly 15,000 meters of drilling. The asset level allows us to push through initial resources, allows us to test some of those very large-scale targets as well. Ultimately, that results in discovery.

Matthew Gordon: So, a lot of it’s going back in the ground, at the end of which you have a resource and then you can raise more money. Coming back to this million again, how do you guys remunerate yourselves? How do you pay yourselves? How confident are you that what you’re getting into?

Matthew Lennox-King: Yeah. So, I’ll answer the question a slightly different way. So, our directors get no cash remuneration. So, they get DSU’s.

Matthew Gordon: Fantastic. Explain to people what a DSU is.

Matthew Lennox-King: So, Director Share Unit’s. So, nothing trades hands beyond a piece of paper until the director leaves the company.

Matthew Gordon: Okay. I like that.

Matthew Lennox-King: It’s great. It means more capital stays in the company. As management we draw salary, though arguably I have been paying my own salary for the last two and a half years.

Matthew Gordon: How do you work that out?

Matthew Lennox-King: In our go public round, which was done a dollar per share in mid 2017, I put over a million dollars Canadian of my own capital in at that time.

Matthew Gordon: How much are you paying yourself now?

Matthew Lennox-King: I have a way to go before I draw down that million dollars. Let’s put it that way.

Matthew Gordon: People can look it up.

Matthew Lennox-King: Yeah, exactly, exactly.

Matthew Gordon: And the other directors as well, are they are doing something similar? Have they put money in?

Matthew Lennox-King: Yeah, everyone’s put in. Everyone’s put in. So, we raised our initial capital at a dollar per share in 2017. Everyone on the team put in at that point in time. Earlier this year we raised 6.85 Canadian. And most of us actually played or participated above our pro rata in those financings as well.

Matthew Gordon: Okay. That’s very interesting because I think it’s a topic with shareholders, for junior companies… when it’s going great, no one really cares. But for small companies with small market caps with no revenue, people are very interested in how the directors pay themselves. So, it’s important to be open about that. So, I think you’ve answered that, but maybe I should ask you again. Why should people be looking at you versus all the other thousands of Canadians. I want you to maybe try answer it from a different way. What does the future look like for you that you can give people a surety or confidence over that they’re not seeing at the moment?

Matthew Lennox-King: Not to compare us to the lifestyle companies, perhaps. But if we look at some of the bits of workflow or milestones that we have coming down the pipe for Contact Gold. So, our principal asset is Pony Creek. That’s right on the Carlin trend. It’s next to a company called Gold Centered Ventures that I’m sure a number of both you and the ultimate viewers will be familiar with. So, it’s got a fantastic address. We will within the month have our major exploration permit, which is called a plan of operations. That will ultimately give us 165 acres of what they call disturbance, meaning drill pad building, road-building, which ultimately gives us the ability to get out and test all these targets that we’re very excited about, but also push the boundaries of the deposits that exist on the ground already. We also have a secondary asset called Green Springs, which is relatively new to the company. It has a much higher-grade profile than Pony Creek does. Looking at grades between 1 and 5 grams per ton, oxide gold in the very shallow environment, 0-50 metres depth, over big widths, 20, 30, 40, 50 meters. So, I think one thing that does differentiate us from many other companies, the lifestyle companies, if you will, is that we actually have legitimate assets, large scale high grades and the ability, not the guarantee, but the ability, the potential, to deliver very large and or high-grade deposits.

Matthew Gordon: I’d say, a lot of CEOs would answer that question in the same way whether they have or haven’t. So, it’s difficult to stand out in that white noise environment. So, I do buy the track record as you’ve got some great names there of people who… and I’m particularly taken by John Doorwood, with the marvel that he employed there, because when I compare to people around him have done a different way, very different valuation, very different results. That’s smart. I mean, how much input do [the board] have? I know they’ve on the board, but they’re not active on a daily basis. How do you engage with them?

Matthew Lennox-King: Yeah, absolutely. So those guys, while they are on the board and they’re certainly not active management, they are very much a part of a team. So, rather than being in the granular day to day, it’s what are the overall fanatic’s? What’s our overall strategy? So, how do we take essentially the raw modelling clay that are these exploration assets, ones that we really like, but how do we actually take those and form them into something that’s going to create value down the road?

Matthew Gordon: So, that’s the conversation I’m interested in. What does that sound like when you talk at the end of each month or however often you talk?

Matthew Lennox-King: Well, absolutely. So, I speak to Johnna let’s say once, twice a week, depending on what’s going on. So, we’ve worked together for many years at this point in time. It all comes down to having multiple exit opportunities. Even at an early stage, I think you need to identify at the end of the day, it’s very rare for someone to do what Rock’s Golds done. Take an exploration asset base and drill it out, permit it, develop it, turn it into a high margin mine. That almost never happens. So, what are the other options on the table? One is outright failure.

Matthew Gordon: Start with the positives.

Matthew Lennox-King: So, that’s obviously not an option. And then the other is do you become part of a wider, solidation play. There’s always the interest in Nevada assets from the mid tiers, the majors, even larger exploration groups who are looking to round out a property position. There is the go it alone, The Rock’s Gold model or ultimately there’s an exit like Integra or Frontier experienced where you have the continued sustained success on the ground, which creates both competition in the market but amongst the larger producing company and you go out in a blaze of glory. But it’s do you make the decisions on the project, so that you keep all those options alive? And it’s fluid.

Matthew Gordon: So, how do you keep all those options alive? I know you’re going to get a bit of money and that changes a lot of things. Gives you a bit more optionality here. And it’s too early to talk about other M&A or anything like that, but you must be looking around you and seeing what’s happening there in the marketplace and there’s a lot of juniors struggling to get cash. They can’t get it. There are some good assets which are stranded in a way financially. So, I guess what you’re saying is one of our unique propositions is we feel we can get the cash to allow us to do the things that we’re planning to do.

Matthew Lennox-King: I would say that is a bit of a differentiator, one thing we were very focused on out of the gate with the company was what does shareholder base look like? Rather than targeting X, Y, Z hedge fund out of Toronto or New York, who’s going to come in, do a fancy trade and be gone. We want people who have a multi-year plan, who have a multi-year understanding of exploration, and that it’s not always a linear progression.

Matthew Gordon: Fascinating. And I think that’s a really good introduction to the story. I like it, I like the team, great team there. I want to see how you raise this money and then what you do with it. Stay in touch. Let us know how you get on. Fascinating. And in the right part of the world. So, we wish you well.

Matthew Lennox-King: Thank you very much. Appreciate it.

Company page: http://www.contactgold.com/

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

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

A screenshot of the popular 'Gold Miner' game.