West Africa Terrorism – UK Government Responds

A screenshot of the FCO advice for travel to Burkina Faso, pre-Feb 2020 to post-Feb 2020. An arrow is in between them pointing right along with a Curious Investor logo and a Crux Investor Logo. A Burkina Faso flag painted on a wall is the background.

Over the last few months, I’ve been covering the West Africa security situation in great detail. Investors need to be informed about potential geopolitical developments that could negatively affect their investment portfolios. It is the responsibility of individuals within the retail investor community to help warn each other about the increasingly extreme danger, when the information isn’t forthcoming from the industry itself.

So, let’s talk about West Africa and the rise of terrorist-led incidents over the last few years. I am thinking particularly of SEMAFO, but as you will note from my other articles, one from January and one from earlier in February, this is far from an isolated incident.

The Latest

So, what’s happened in the last few days? The UK government has officially recognised the further deterioration in Burkina Faso, due to terrorist activity.

Foreign and Commonwealth Office (FCO) travel advice in January:

A screenshot of the UK Foreign Commonwealth Office travel advice for Burkina Faso, pre-February 2020.
Pre-February 2020

FCO travel advice as of 7th February 2020:

A screenshot of the UK Foreign Commonwealth Office travel advice for Burkina Faso today.
February 2020 – Desperate and dangerous times for Burkina Faso

Burkina Faso is now a no-go zone according to the FCO. The surrounding West African countries are expected by most news outlets to be at great risk. Countries that used to be perceived as high-potential, unexplored safe havens, like Ghana, Cote d’Ivoire, Togo and Benin suddenly don’t look as appealing.

In light of such advice, would you travel to Burkina Faso? Next question: would you send your money there? Investors can choose to do as they wish, but at least make the decision armed with all the information. You don’t want to end up like SEMAFO shareholders.

If you are happy to invest in volatile jurisdictions, where the company you are invested in could experience brutal, large-scale disruptive violence, one has to pose the question: do you really care about your money? If you can afford to put your hard-earned cash at risk, then that is your choice. If not, you should seriously consider if the risk to reward ratio is worth it. Is ‘out of sight, out of mind’ really the way forward?

Investors create a lot of the artificial draw factor for mining companies to chance their arms in such volatile regions, but it is the employees that can sometimes pay the price.

Investors need to work out what kind of investor they are. The one thing all investors should insure is that they are aware. The worst thing an investor can be is oblivious. I’ll keep track of this situation as it continues to develop and check in with you soon.

Opinions expressed are solely of contributor, Curious Investor, and do not express the views or opinions of Crux Investor. Do your own research.

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 FCO advice for travel to Burkina Faso, pre-Feb 2020 to post-Feb 2020. An arrow is in between them pointing right along with a Curious Investor logo and a Crux Investor Logo. A Burkina Faso flag painted on a wall is the background.

The West Africa Security Situation – An Update

Burkinabe Soldiers perform a tactical reload drill in preparation for participating in Exercise Flintlock 2019, near Po, Burkina Faso, Feb. 17, 2019. Approximately 2,000 service members from more than 30 African and western partner nations are participating in Flintlock 2019 at multiple locations in Burkina Faso and a key outstation in Mauritania. (U.S. Army photo by Sgt. 1st Class Mary S. Katzenberger)

A few weeks ago, towards the end of 2019, I penned an article regarding the perilous state of affairs in Western Africa (the Sahel region as it is called locally). The response was… lively, to put it mildly. I had investors in Sahel-based mining companies calling me every name under the sun, and I even heard the article didn’t go down too well with a few PR teams of junior gold mining companies! They don’t want people talking about it.

Regardless of the backlash, I’m glad I brought the issue to the attention of investors with a fully referenced and factual article that was driven purely by an agenda to tell the truth. Like I said before, retail investors need to look out for one another, and that is exactly why I write these articles.

The Latest

Since the article went live, I’ve been pleased to see the increase in discourse surrounding the Sahel topic amongst investors, fund managers and mining CEOs. The Sahel is a region, not a country. It crosses borders, as do the tribes and people of several West African countries. It is the way it always has been. Investors have all had plenty to say, and much has happened since my previous article went out, not a lot of it good. Let’s take a look at the latest information.

Mainstream media has begun to cover the situation. Last week, the Guardian (a well respected and independent UK newspaper) has called the situation ‘an unprecedented wave of violence, with more than 4,000 deaths reported last year, and a bloody start to 2020.’ It explained that ‘the number of attacks has increased fivefold in Burkina Faso, Mali and Niger since 2016,’ based on UN figures.

A screenshot of a BBC graphic showing Sahel casualties for 2019 by region.
A major crisis is unfolding before our eyes, but nobody seems to be talking about it.

The United States has recently announced intentions to reduce its military involvement in the region, with the ‘Pentagon eying a reduction of its footprint in the region as terrorist groups expand in the Sahel.’ Not enough oil and gas to be of interest?

This announcement has left allied forces extremely concerned; ‘French Armed Forces Minister Florence Parly warned on Monday that expected cuts to US military operations in Africa would hamper counter-terrorism efforts against jihadist groups in the Sahel region.’ France announced that it would send another 600 troops to the region, now totally 5,000. Can this make a difference?

Last year, in Burkina Faso, ‘deaths rose… from about 80 in 2016 to more than 1,800 in 2019.’

On Saturday (1st February 2020), 20 civilians were killed in an overnight attack in North-Western Burkina Faso. This is becoming frighteningly routine in a country branded ‘too dangerous’ for children ‘to go to school.’ This is just a week after 39 people were killed when militants attacked a market in the province of Soum. The violence is constant, brutal and shows no sign of ending.

A screenshot of a BBC graphic showing total schools closed because of security incidents by region in Burkina Faso.
Schools closed because of security incidents in Burkina Faso. (11 March 2019)


The Sahel region includes Burkina Faso, Mali, Mauritania, Southern Niger, Benin, Nigeria, Senegal, Sudan, Eritrea and Chad. The threat extends to other countries including Algeria, Cameroon and Libya.

The porous nature of borders in the Sahel region means terrorist groups such as al-Qaeda in the Islamic Maghreb (AQIM) are able to operate across borders and carry out attacks anywhere in the region.

So, what does this mean for investors?

At the moment, as far as the Sahel situation goes, we’re all hearing the same thing from mining CEOs: silence. The few who do comment all make similar remarks. It’s either “this situation will not affect our operations,” or “the security forces in the region provide us sufficient protection from the threat.” Your ability to invest in a Sahel-based company comes down to one thing: your satisfaction with these answers. So far, only SEMAFO Inc. has been affected. Lots of the West African gold miners continue to explore and produce gold; from that point of view, it’s business as usual.

A screenshot of SEMAFO Inc.'s share price for the past year.
SEMAFO’s share price after the November attack that killed 37 people.

In fact, as Mark Kenwright, Associate Director of Wardell Armstrong, said in a recent interview with Crux Investor, “life goes on.” I am confident there are companies that will make shareholders money. However, I remain unsure whether this confidence would be enough for me to invest in the region. After all, I could very feasibly end up in a SEMAFO-esque situation.

Investors need to be aware of the risks before putting their money on the line. Is the risk worth it? There is a big, wide world out there for investors to explore and invest, so why bother with the Sahel at all? Mining CEOs in the region have to convince us otherwise. The ball is in their court, and I’m waiting to hear why I should choose a company in West Africa as opposed to one in a more stable jurisdiction.

For me, the jury is out, but I will keep checking in and providing investors with this valuable information as the situation continues to develop or deteriorate.

Opinions expressed are solely of contributor, Curious Investor, and do not express the views or opinions of Crux Investor. Do your own research.

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.

Burkinabe Soldiers perform a tactical reload drill in preparation for participating in Exercise Flintlock 2019, near Po, Burkina Faso, Feb. 17, 2019. Approximately 2,000 service members from more than 30 African and western partner nations are participating in Flintlock 2019 at multiple locations in Burkina Faso and a key outstation in Mauritania. (U.S. Army photo by Sgt. 1st Class Mary S. Katzenberger)

Serabi Gold (LSE: SRB, TSX: SBI) – A Big Step Forward?

A cartoon man, dressed in a shirt and tie, cuts himself free from the shackles of debt.
SERABI GOLD
  • LSE: SRB
  • Shares Outstanding: 58.91M
  • Share price GB£0.76 (21.01.2020)
  • Market Cap: GB£44M

Gold is a hot commodity at the moment, and promising juniors like Brazil-based gold exploration and production company Serabi Gold have been a central focus for many investors. Serabi Gold has been trying to create a positive outcome for investors from its debt situation for over a year. However, according to today’s press release, they seem to have reached a solution. What sort of package has been formulated and how will this impact investors?

The Background

With gold now sitting at c. $1560/oz, many gold companies reaped the rewards and performed reasonably well last year. However, Serabi’s trebled share price in less than 6 months during 2019 is something of an anomaly; it seems to dispute the notion that Serabi Gold has simply benefited from a good year for gold, or has just recovered well from the sale of shares from two key investors. There appears to be more to this story.

In terms of productions figures, last year Serabi Gold broke the 40,000oz mark for the first time ever with grades of well over 6g/t from Palito Gold Mine. In addition, 5 out of their last 6 quarters have seen them reach 10,000oz. This level of consistent, strong performance is rare in junior mining companies; most trip over many hurdles before attaining stable productivity.

Serabi seems to have hit the ground running, and with the imminent introduction of an ore-sorter that is currently being calibrated on-site, Serabi will hope to see its production capacity increase further. This will be courtesy of liberated processing space at their plant. The ore-sorter will reduce the amount of ore going into the processor, and increase gold output, to see a 10-15% rise in production with the equivalent rise in mining costs but no increase in production cost.

A photo of Serabi Gold's Palito Gold Mine
Palito Gold Mine

However, this is all a long way off. Serabi has been drilling at San Chico for 2 months, performing step-out drilling and extensions to current mine limits. Deep underground drilling and strike at surface drilling will continue into Q2. Geophysical anomalies first discovered in 2018 now finally have a drill rig assigned to them and a resource update is expected by the end of Q2. Investors will want to see the share price rise again.

If everything goes to plan, this means Serabi Gold could see an increase in its US$6-7M revenue to add to the US$14M cash that sits in its coffers at present. However, Palito can only take Serabi’s share price so far. In order to gain access to a higher-grade resource, increase production, and reduce its AISC, Serabi’s Coringa Gold Project needs to be brought into production. How will this financial restructuring free up the Serabi’s management team to make decisions in 2020?

The Debt Package

The encouraging story of Serabi Gold has always had something of an Achilles heel. Serabi’s debt to Sprott Lending Partnership, c. US$6.5M, and Equinox Gold Corp., US$12M, has been something of an elephant in the room.

We imagine one option Serabi may have considered would be the standard route of raising equity, but this isn’t the option they have taken; perhaps Coringa’s status, at a PEA stage without significant underground development, may have deterred some potential investors. The solution Serabi has opted for is US$12M of convertible notes with existing shareholder Greenstone Resources, which will enable them to pay back Equinox. The remaining debt owed to Sprott will be settled from cash reserves. The convertible loan is a flexible arrangement that enables Greenstone to be repaid via cash or shares at their own discretion. Based on the terms set out in their release, conversion of the convertible loan notes would see Greenstone’s stake in Serabi Gold potentially rise to 37.8%. Will large shareholders Megeve Investments be happy? Is this good for liquidity in the long run? We shall see.

Investors will be happy to see dilution warded off, but a convertible loan can still lead down this path at the end of the 16-month term.

Coringa – Full Speed Ahead

With this loan in place, Serabi Gold can now look to push forward with the development of Coringa. It has not just been an inability to spend that has held Serabi back on this front; the collapse of the Valé tailings dam, in Brumadinho, Brazil in January 2019, meant mining companies had to spend a great deal of 2019 adjusting their tailings plans to create safer, more environmentally friendly dry-tailings arrangements. Serabi were not immune from this requirement. This also delayed Coringa’s preliminary permit hearing, because of the need to complete a new Environmental Impact Assessment (EIA).

However, with the tailings issue resolved and payments to Sprott and Equinox settled, Serabi will no doubt look to replicate their success at Palito. On the face of things, this does appear to be a bit of a rinse and repeat story. Coringa is geophysically and metallurgically similar to Palito, but with a higher grade of 8.34g/t. This is reliable, consistent and relentless underground mining which is exactly what Serabi has been demonstrating for the last couple of years.

Serabi’s team says Coringa is close with their preliminary licence, a hearing scheduled for the 6th February. Serabi claims to have worked with the local community to ensure the project will run in an environmentally and socially sound manner; the indigenous communities in the area have signaled their approval for the development.

Serabi now has plenty to do; the management team is certainly going to be busy! They will likely use their freed-up cash flow to bring Coringa through to production by Q1/21, with the target of a combined, cross-mine AISC of c.$950. Investors will want to see eventual production double. Until then, it remains to be seen exactly how this debt arrangement pans out and if Serabi Gold has what it takes to get Coringa up and running. History would suggest they do, but this is mining. Let’s remain quietly upbeat. There’s a long way to go.

CLICK HERE to read the full press release.

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 cartoon man, dressed in a shirt and tie, cuts himself free from the shackles of debt.

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.

Scared About Investing? Read this.

More Of The Upside, Less Of The Down.

People have been putting their hard-earned cash into junior mining companies for decades. What exactly do these companies do with your money? They throw it into a hole and hope something good comes out. But let me be clear, investors can make a lot of money investing in mining companies if you know what to look for and are clear about your investment strategy.

An aerial photo of one of the world's largest mining holes, the Mir Mine in Eastern Siberia.
The Mir Mine in Eastern Siberia; is some of your money inside?

This article is for those investors who may be less knowledgeable about mining and nervous of miscalculating the risks. I would also like to introduce you to a very interesting business model within the current electric vehicle (EV) thematic which removes a lot of these risks for investors. 

First, let’s talk about mining risk. There is an ever-present risk factor that is inseparable from junior mining investment, and it is every investor’s most loathed buzzword: uncertainty. ‘Indicated resource’ and then ‘inferred resource’ estimates from preliminary drilling can become the flimsy foundation for investment decisions. Forming the top of this wavering base is the decision-making capacity of a company’s management team; they may have a promising asset, but without mitigating risk effectively, and employing an astute business plan or the appropriate strategy to deliver that plan, the asset can become uneconomical. Not only is the potential value of investment opportunities nebulous, but this value might not even be extractable. 

The truth of the matter is all junior mining operations have an element of luck. We are dealing with resources that are hidden underground, with a list of risk factors that would make Evel Knievel wince. There are an innumerable number of things that can go wrong on a daily basis, and this is just on a company level: expand that logic to the wider financial market and the extent of risk becomes clear. The day to day role of junior mining management teams is to mitigate these risks in the best interests of their shareholders, but the reality is there is only so much influence they can have over an industry more akin to gambling than one might realise.

Junior mining companies have to sell us an idea that doesn’t necessarily require substantial evidence. Boards of directors and management teams are usually master salespeople who can coerce their way to funding they often don’t deserve. Unfortunately, this is the cold, hard reality of investing in junior mining companies; just as gamblers will head to the casino and get the fruit machines bleeping, people are always going to roll the dice and take a punt on a company they think can give them an exciting bang for their buck. Junior mining investment isn’t quite a casino of pure luck, but luck is of undeniable significance.

However, what if there was a better way? What if there was a way to gain exposure to much of the exciting upside of mining investment, but that steer away from geological risk and mining difficulties? The answer is in extracting value from materials and products that are already at surface. This provides a reliable, unequivocal inventory, and helps work towards the green energy sentiment sweeping the western world with all the ferocity of the awful Australian bushfires.

A screenshot of three dollar signs in a line.
More Money, Less Worry.

There is no doubt that mining is essential to provide the items we use in everyday life and no number of protesters outside mining conferences harassing mining executives is going to change that. The irony of these protesters filming themselves on phones made from mined materials, having travelled there on transportation made from mined materials, is not lost on me.

So, let’s get real. Mining is here to stay. If you want to talk about ethical mining, fine. Hold management accountable to those standards, fine. But if you go down this track, you need to go all the way. End to end.

I have previously spoken about true end-to-end green investing. We live in a time of disposable products. Many of these products contained mined materials which go to landfill and dumps. We then mine more materials out of the ground to make more products. It’s not just the ethical and environmental issues, commercially this doesn’t make sense. We are leaving billions of dollars of materials in dumps.

Mining ethically is one thing, but recovering value from end-of-life products is the, as yet, unanswered requirement for a fully functional and genuine green energy investment eco-system. A primary driver of the green energy narrative is the electric vehicle (EV) revolution. There has always been a contradiction when it comes to EV, because the very thing it seeks to positively effect, climate change, is only positively impacted at the front end of the process – less carbon emissions from the vehicles. If one is to analyse the process of battery and electric vehicle manufacture it is far from zero carbon neutral. In addition, the environmental challenges around battery disposal and destructive pyrometallurgic recycling techniques, mean the entire EV macro investment story becomes fatally flawed.

I recently wrote an article regarding an exciting solution to the cost and environmental ramifications of current pyrometallurgical norms. I explained how I discovered an Australian company, Neometals, who have a proprietary hydro-metallurgical battery recycling process which recovers +90% of materials (nickel, lithium, copper, cobalt, iron, aluminium, manganese). However, I didn’t fully explore the genius of their business plan, or how it relates to us investors.

Neometals is a company with value recovery at its core, and its plan will have the approval of the ‘green army’. Neometals signed a memorandum of understanding (MOU) with German-based private metal industry firm SMS Group to work jointly on the funding, research and evaluation of its lithium-ion battery recycling technology in October, 2019. If successful results are registered at the joint venture pilot plant, the companies will likely develop several fully operational battery recycling facilities.

Neometals’ market cap of AUS$103.44M bizarrely only equivalent to the company’s current cash reserves. They are equipped to make this happen technically and financially, and SGS brings all the contacts and cash to roll this out across Europe.

By partnering with a giant company like SMS Group, Neometals will secure contracts with vehicle manufacturers to provide large, stable quantities of feed-stock (scrap and end of life batteries) for their battery recycling plants. By establishing this robust supply, Neometals solidifies its dominance over traditional junior mining companies; there is nowhere near this level of certainty when mining underground resources.

In addition, Neometals will look to secure contracts to supply its >90% recovery of battery materials back into battery manufacturers. In my opinion, €5Bn SMS Group can confidently facilitate these arrangements, and can bankroll all aspects of the joint venture with confidence.

It is quite clear: by investing in Neometals, investors gain access to an undervalued, unique, proprietary solution that has the funding security investors wish for. The feedstock supply and market demand provide certainty, and the economics of the project provide junior mining upside but without the risks. The economics of the project also fit into the EV narrative in a way that junior miners have not yet been able to deliver on. By re-using surface-based material, Neometals reduces the costs, safety risks and environmental impacts associated with mining. The EV cycle now has an appropriate end, and it is an end that could make you a bucket full of cash.

The Neometals’ management team has pieced together an eco-system of people and partners. I am under no illusion; this team has a clear, solid plan for growth, with undeniable evidence of great success in the past. The company originally made their money with a lithium mining project, Mt Marion, in Australia, and timed their exit perfectly. They pocketed c.AU$140M, but more importantly returned c. AU$45M to shareholders. This is a team that clearly know what they are doing.

A picture of a 'risk-o-meter;' the risk is in the red zone: 'high.'
Why take a big risk when you can play it safer and still make big money?

In conclusion, let’s start getting smarter with our investments. While conventional mining is always going to have the potential to make us money, why not consider alternatives that can mitigate risk and still provide excitement?

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.

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.

Palladium One Mining – Use Your Cranium: Invest In Palladium? (Transcript)

A photo of 6 blocks of Russian palladium.

Interview with Derrick Weyrauch, President and CEO of Palladium One Mining (TSX.V: PDM).

Palladium One Mining Inc. is a TSX-listed PGE and Nickel-Copper exploration and development company. It possesses several assets: the flagship Läntinen Koillismaa PGE-Nickel-Copper Project in north-central Finland and the Tyko Nickel-Copper, PGE Property near Marathon, Ontario, Canada.

The key theme at play is strong fundamentals. Palladium One published their first Resource for the company in September: 1.2Moz of palladium equivalent (split 50/50 between indicated and inferred). Palladium has a strong foundation of demand and limited supply says Weyrauch.

Palladium is an industrial metal: 86% of it is consumed in auto-catalysts, and it is predominantly used in gas engines. Using Palladium allows for cleaner air, making palladium a modern, green solution to transportation headaches is the marketing spin. The slow decline of the diesel engine is resulting in greater future demand.

There has been a structural deficit of Palladium in the market in recent years, and Palladium One is hoping to fill that gap. The market is small at around 10Moz. There are additional applications of Palladium in dentistry and jewelry, but are much smaller markets.

Palladium One is in the process of closing a non-brokered private placement for $3.8m dollars. Renowned Canadian mining investor Eric Sprott is investing $1.2m, giving him a 19.9% ownership of Palladium One. This is only option money for Sprott as Palladium is not large market, nor a key focus for him, but it is interesting to us that he has selected this Palladium asset.

Weyrauch explains another ace up Palladium One’s sleeve: Finland is an excellent jurisdiction with “first-world geological data sets.” This area has been heavily researched and the information is publically available.

Palladium One has a brand new management team and board as of 2019. Dr. Peter C. Lightfoot, a 20-year nickel exploration veteran at Inco and Vale, clambered aboard in September. A real plus, not sure if this is his only focus though. Neil Pettigrew, a geologist with 20-years of mineral exploration experience, serves as Palladium One’s Vice President – Exploration. Weyrauch’s primary experience comes in the world of finance where his experience has been restructuring mining companies and experiencing success.

Weyrauch claims the main obstacle for Palladium One is the same as for every other junior: raising capital. Weyrauch has used the accurate historical data, obtained in Finland, to successfully push the Palladium One story. He claims the reason behind the lack of exploration under previous stewardship at the property comes from economic downturns of Palladium rather than a lack of promise. We shall see.

Palladium One’s strength comes from the fundamental promise of their flagship asset, and the fundamentally robust level of palladium demand.

Palladium One has a market cap of CA$2.94M. It started the year with a share price of just $0.04CAD, rising to a peak of $0.14CAD in April, before falling back to its current value of $0.075CAD.

A concern is the available capital to do what they need to do and getting to a point where the company understand the economics for this project. There will be questions marks around the management team’s experience in this particular field, and the commodity itself. The palladium market is small, and with the impending EV revolution, battery metals would demonstrate enormously greater growth potential in the automotive sector. By the time Palladium One would be ready to mine, would EV be taking hold?

It is a question of whether investors buy into the macro story of palladium, and can trust the team at Palladium One to deliver on an asset that has failed to be mined under several previous companies.

What did you make of Derrick Weyrauch? Is palladium worth your time, attention and money? Do you have any idea what the palladium market looks like? Comment below and we may just ask your questions in the near future.

Interview highlights:

  • Company Overview
  • Palladium: What is it, What’s it Used For and What’s the Size of the Market?
  • Company Financials and Cash Position: How Will They Finance Their Projects?
  • Finland: Is it a Mining-Friendly Jurisdiction?
  • Team Experience
  • Business Plan and Focus: What is the Plan and When Do People See Things Move?
  • Current Constraints: What is Preventing Them from Moving Forward and How are They Dealing With it?
  • What Did E. Sprott Buy Into and Why Should You Invest?

Click here to watch the full interview.


Matthew Gordon:  You’re over here for the 121 meeting a bunch of investors, I guess, and telling your story.

Derrick Weyrauch: Speed dating at its best.

Matthew Gordon: Why don’t we just start with one-minute summary for people new to the story?

Derrick Weyrauch: Okay. Well Palladium One is basically a brand-new story exploration development company and its flagship asset is the LK Project in Finland. It’s a Palladium dominant poly metallic deposit. And we just published our first resource for the company in September. 1.2MILoz of palladium equivalent in all categories split roughly 50/50 between indicated and inferred, indicated 1.8 grams Palladium equivalent and 1.5grams for the inferred, weighted average about 1.65grams. And we’ve got a 38KM favorable basal contact. And this is just covering 1.1KM of that contact. So, a lot of a lot of territory to still hit.

Matthew Gordon: Let’s start off with the obvious question: palladium, what’s it used for?

Derrick Weyrauch: Palladium is really, in my view, an industrial metal. 86% of it is consumed in the auto catalyst. It’s really a metal for providing clean air. Predominantly it’s used on the gas engine. So, you’d see it in the catalyst and basically scrubs the nitrous oxide and carbon monoxide and with increasing environmental standards for air quality, there’s more and more palladium loading and going into the auto catalysts. It’s feeding the demand. The other aspect with the Palladium is that with the demise of diesel that we see going on since the Volkswagen gate, if you want to call that or diesel gate, consumers are transitioning away from the diesel engine into the gas engine. And there’s more demand as a result of that for palladium. And there’s been a structural deficit in supply for a number of years.

Matthew Gordon: What is the size of the market?

Derrick Weyrauch: The global mine productions is about 6.9MILoz, so fairly small. There’s another 3MILoz that come from recycling. That’s roughly 10MILoz market, 6% of which goes into the auto catalyst. There are other applications for jewellery and dentistry and things like that. But it’s for the most part I consider it industrial metal and not so much on the investment side.

Matthew Gordon: You’re a relatively new story.

Derrick Weyrauch: Absolutely. People haven’t really heard of it.

Matthew Gordon: You’ve got a 3, 4MIL market cap. How much cash have you got?

Derrick Weyrauch: We’re just in the process of closing a financing of $3.8MIL so that should close in the very near future. The lead order on that was with Eric Sprott. So, he’s taking about $1.2MIL of that financing, which will give him about 19.9% ownership interest on non-dilutive basis in the company.

Matthew Gordon: You’re in Finland.

Derrick Weyrauch: North Central Finland.

Matthew Gordon: What’s that like to operate in?

Derrick Weyrauch: Finland is absolutely a fantastic jurisdiction. It’s really only been open to private mining investments since the 1990’s. Previously was pretty much state run. And what we like to tell people is Finland has first world geological data sets. The information is fantastic, lots of high-quality mapping, reconnaissance, drilling and whatnot and all that information is publicly available even the assays or rather the core, this is available as well, but because it’s only been open for exploration for 20 odd years, it’s underexplored. There’s a lot of low hanging fruit and we see that in our project, which if this data was available, let’s say in a North American context, it would have been followed up. We have our Murtolampi target, for example. We’ve got a nice 200 meter fence with the number of holes in it going down about 40 meters. All the mineralized holes, for the most part, ending in mineralization. It’s been sitting there for 20 years. Nobody’s ever poked a hole around there or done any follow up work. So, that’s just low-hanging fruit and gives us an obvious target to go after.

Matthew Gordon: Who here has exited, made money for shareholders, built companies…

Derrick Weyrauch: Well, the company’s been completely changed over the course of 2019. So brand new management, brand new board.

Matthew Gordon: Who’s delivered before?

Derrick Weyrauch: So, Peter Litefoot for example, we brought him on the board in September. He used to be the head of Project Generation Nickel Base Sulphides for Inco Valle.

Matthew Gordon: Who’s done it in an exploration company? It’s different.

Derrick Weyrauch: Well, they’re also finding some fairly large deposits in those big boy companies as well. And so, he’s one individual. Neil Pettigrew’s, another individual. He is our vice President of exploration. Also, on the board, he’s actually based in Thunder Bay. And what brought him to Thunder Bay a number of years ago was the Palladium Boom, a couple decades ago that North American Palladium.

Matthew Gordon: And what about you?

Derrick Weyrauch: Well, I’m finance guy by background. 30 years in the capital markets. And most recently, I was the CFO for Jaguar Mining. Did the restructuring there a few years ago and prior to that also was with Andina Minerals, which we sold to Rothschild Mining back in early 2013.

Matthew Gordon: Can you just tell us what the plan is, how you can do it? Who’s going to do it? How are you going to fund it?

Derrick Weyrauch: Well, really, what we’re going to do is leverage off of the data set that’s already available for the project. We have 38KM worth.

Matthew Gordon: What type of company are you going to build?

Derrick Weyrauch: We’re growing a resource base.

Matthew Gordon: That’s the model?

Derrick Weyrauch: Absolutely. To get to that critical mass where you may want to put it into operation or perhaps somebody takes a shine for the asset and decides they’d like to have it.

Matthew Gordon: Hopefully that’s attractive to someone who will take it to the next stage. That’s the model.

Derrick Weyrauch: We’re not currently configured for a development scenario, so we’re not going to fool ourselves.

Matthew Gordon: How do you finance this thing? You’re raising a little bit of money now, and that’s for presumably this seasons’ drilling?

Derrick Weyrauch: It’s predominately for the LK project in Finland. We do have another project in Ontario, a nickel sulphide asset. But the money is really earmarked for exploration in Finland conducting geophysics programs. So, IP as well is a diamond drilling program that we hope to initiate this winter. It’ll be 4-5 meters of drilling. So hopefully we have some very consistent news flow.

Matthew Gordon: Is it seasonal there? Can you drill twelve months of the year?

Derrick Weyrauch: You can drill twelve months a year. As a matter of fact, it’s a preference to drill in the winter. It’s easier to get around. You know, if you if you have a moisture in the soil, not just track right over.

Matthew Gordon: Where are you based?

Derrick Weyrauch: I’m based in Toronto.

Matthew Gordon: You’ve got a local team there?

Derrick Weyrauch: Yeah exactly. But for the most part of the stage, we’re still relying on consultants. We’re early days for us, we’ve only been configured like this for about six months with this management team and board. So, we’re still building it.

Matthew Gordon: When do you get boots on the ground?

Derrick Weyrauch: Well, we’ve had boots on the ground this summer already. So, we have people there working for us, but in a consulting capacity.

Matthew Gordon: When do people start seeing things moved? What do you think people are going to be interested in hearing next?

Derrick Weyrauch: Well, yeah. The key message is that we’ve got a very interesting property package, which is at 38km of basel contact, less than 4km of it has had systematic drilling. Based on the historical data set we get from auto compo and others, we have seen tremendous amounts of reconnaissance, drilling and sampling that’s happened along the contact. So, we know it’s generally mineralised and we know where to go. So, there’s a very good targeting that’s already taken place with only four kilometres of the thirty 38KM trend, having had systematic drilling, our job is really to expand out and grow the resources more. The Kaukua deposit where we announced the resource in September, it’s only 1KM of that 4 where you have got those ounces and that resource. So, our job is to do the geophysics, target into the higher sulphide areas along that contact and drill those out. And we envision having a situation where we have multiple resources, perhaps multiple open pit environments. We’re not really looking at an underground scenario at this point. Our resources are pit constrained, and the pit only goes down to about 275 meters. So, fairly shallow.

Matthew Gordon: How do you manage all of this? How do you watch the pennies? What are the things that are constraining you now?

Derrick Weyrauch: Well, capital is always a constraint when you’re pre-revenue. So, you know, that’s the big issue for any junior explorers. So, you have to have sufficient reason and justification to be able to raise the next chunk of money. So, what we did is we spent the summer validating all the historical information, putting a very robust resource together, pit constrained. We tripled the cut off grade from what had been done by previous operators. And, demonstrating that this is real. It’s not an aggressive estimate by any means. We only used the price assumption of $1100 for Palladium as an example, whereas the market right now is over $1700 per ounce. So, we’ve got that, we show the historical information that we have on the property and then it’s a matter of just systematically working that property. One of the luxuries that we have in this particular situation is we don’t have to come up with any black box magic and new geological theory that’s maybe a little bit out there because this project’s been looked at time and time again. This is more taking a systematic, proven approach and working your way through the process.

Matthew Gordon: Why hasn’t anyone done this before on your property?

Derrick Weyrauch: Well, the property was released by Autocompo’s. They released lots of properties and was sitting in inventory, so to speak. It was picked up by a prospector in 2006, was flipped into a Vancouver junior. They did one program of exploration at the Kaukua area, and they got caught with the downturn in 2008, 2009 and weren’t able to really survive that. The asset, then moved and some additional properties or claims were added to it by another junior out of Vancouver that were able to do one program in 2012. But they had challenges of the 2012/2013 downturn. Nothing’s happened to the project since. It’s just been sitting there and ultimately moved into Palladium One. So, there’s no market awareness, only two real programs and nobody’s followed up on the prior program.

Matthew Gordon: How do you ensure this company isn’t another statistic on the side of the road? What are the things that you need to deliver, stage by stage, to ensure that we’re still having this conversation a couple of years’ time?

Derrick Weyrauch: Well, we need to grow the resource in a prudent way and target the low hanging fruit.

Matthew Gordon: What does that mean?

Derrick Weyrauch: So, we’ve defined a resource right now. Our immediate target is to double that. And we believe we have a path to double that in fairly short order. I’m going to say it’s going to happen in the next program. That might be a little bit aggressive. But, I think in the next year, we would have a good shot of doing that with sufficient amount of drilling. We’ve got a budget now for a drilling program. We’re going to be doing 4-5000 meters of drilling. The reality is that we have to do a little bit of a balancing act. So, there’s a little bit about upgrading the historical information to be able to bring another zone into resource. But then there’s also the aspect of how much more discovery you want to get.

Matthew Gordon: Is that what you sold to Eric Sprott, 19%? But this is really option money for someone like that. But that’s the story he bought.

Derrick Weyrauch: Basically. There’s a resource growth opportunity here that’s not high risk. There’re very limited investment alternatives for Palladium. The fundamentals for Palladium are fantastic. You know, 80% of production comes from South Africa and from Russia. 90% of production is a by-product of other mining operations, whether it be nickel or platinum. As a result of that, producers have little capacity to increase palladium production to meet the demand. The commodities have been in deficit position for eight years and is forecasted to continue. The forecast for 2019 is about 800,000onz deficit in a market that’s only producing 7MILoz. It’s a big problem. And what’s also interesting is the two primary palladium producers globally, Still Water and The North American Palladium, they’ve both been acquired by South Africans taking the money and investing in other jurisdictions, whether it be in Montana or Ontario. So, it’s a market where there’s limited capacity to increase supply from the existing producers. And we think we’ve got a project that’s fairly straightforward. It’s open pit. It’s not very deep. We believe it’s going to grow a few multiples of where it is now on a systematic approach without applying huge amount of risk.

Matthew Gordon: Why should anyone look at your company versus the multitude of other junior miners or early stage companies? Why should they trust you to help them make money?

Derrick Weyrauch: It’s a great question. I think it starts off with the commodity, right? There’s fundamental demand it makes sense for the commodity. Secondly, the asset, there’s limited investment alternatives. If you’re looking for exposure to palladium, Stillwater’s gone, North American Palladium is gone. Where else are you going to invest? You’ve got a systematic, simple approach to increasing the resource so it’s not high risk. On top of that, we’re in a Tier 1 jurisdiction. Finland is a fantastic place to work. Rule of law and systems that’s mining friendly. There’re smelters locally. We’ve got power on the property. We’ve got roads to the property. It’s just a nice jurisdiction to be in.

Matthew Gordon: Ok. Well, we look forward to seeing how this story develops. Stay in touch. Let us know how things are getting on and we will see you hopefully in London soon. Appreciate that. Thanks very much.


Company page: https://www.palladiumoneinc.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 6 blocks of Russian palladium.

Family Office – Major Investor Megeve Investments, Nicolas Banados (Transcript)

A photo of a neat stack of gold bars with 'Serabi Gold' written across the photo.

Interview with Nicolas Banados, Managing Director of Family Office Megeve Investments and Investor in Serabi Gold (TSX:SBI)

Megeve Investments, a non-discretionary portfolio of Fratelli Investments Family Office, is a single-family office located in Santiago, Chile. Its main asset is Chilean retail chain colossus, Farabella. The firm offers asset management and public/private equity investment services. Banados is Managing Director of Private Equity and attorney-in-fact at Megeve Investments. His focus in on direct investment in Latin American companies.

Megeve Investment first invested in Serabi Gold 8 years ago, where Nicolas Banados now serves as the Non-Executive Director for the family office. Megeve Investment already owns a copper company and a gold company in Chile, in addition to a forestry (natural resource) company in Colombia.

Therefore, Serabi Gold sat in a familiar area of the industry and was in a prime position for Megeve Investments to obtain c.50% (now voluntarily diluted down to 32.8% after the 25.3% investment from Greenstone Resource II LP). While the timing of Megeve Investment’s involvement in Serabi Gold was far from ideal given the plummeting gold prices at the time, Banados is still glad he made the decision to invest.

In addition to working on efficiencies at current Serabi Gold operations, Banados is open to the idea of additional acquisitions, like the Coringa Mine, in the future, to further enhance the production capabilities of Serabi Gold and solidify its position as a seriously profitable player. Banados spends a great deal of time working with Serabi Gold to align their strategies, resulting in a more cogent business plan that reduces the risk and provides clarity for existing and prospective investors.

Banados’ primary source of excitement comes from the opportunity for growth and exploration in a huge, gold-saturated country: while Brazil is a developed mining country, particularly of iron ore, the gold marketplace is yet to be fully mechanised.

Moreover, Banados sees immense potential in organic and green-field areas to increase production towards the ‘magic’ 100,000oz/y number. Lastly, Banados touches on South American operations and clearly explains the company’s priorities lie in areas it has established a sense of comfort: Chile, Brazil, Peru, Colombia and Paraguay. What did you make of Nicolas Banados? Are you intrigued by Megeve Investments’ involvement in the Serabi Gold story? Comment below.

Interview Highlights:

  • Megeve Investments: An Introduction. What Sectors Do They Focus On?
  • The Growth Component: How Does Serabi Gold Fit Their Portfolio?
  • Working with Serabi Gold on Increasing Production Capabilities
  • Future for Serabi and Their Investment: Was it the Right Choice?
  • Operating in South America: Positives and Negatives

Click here to watch the full interview.


Matthew Gordon: We are with with Nicolas Banados. He is an investor in Serabi Gold, the AIM listed gold producer. Thanks for joining us here in London. You normally work in South America.

Nicolas Banados: I’m usually based in Santiago, Chile. I travel around Latin America doing our investments in Chile, Peru, Colombia and Brazil.

Matthew Gordon: We’re really pleased to have you here because Family Offices are more and more an important part of the mining investment scene. We’re delighted to be talking to you today to try to understand how Family Offices think. Tell us just a little bit about the group.

Nicolas Banados: Megeve Investments, is the manager of Fratelli. It’s a single-family office. It’s a Chilean family which its main asset is a Latin-American retailer called Farabella. It has department stores, shopping centres, financing consumer loans and supermarkets, it’s a little bit of everything in the whole region. And we manage their other investments, we have public equities, debt, private equity globally, but with a strong focus to Latin America, which is our market. I run the private equity division of the company. We have a five-person team. We mostly do direct investments in companies in Latin America. We operate in Chile, Peru, Colombia and Brazil. Only those countries.

Matthew Gordon: I think you’re being quite modest. It’s a very large group.

Nicolas Banados: It’s an important group.And one of the things that you probably know about family office, is that we don’t disclose numbers.

Matthew Gordon: You started in retail. That’s where the wealth comes from, from a long time. Over 100 years ago, right?

Nicolas Banados: Yes. 120 years.

Matthew Gordon: But you have migrated and morphed into other things.

Nicolas Banados: The family still owns their retailer. They are still active there. I work with the second generation of the family. They are still one of the three brothers. One is still the executive chairman of the retailer. So, what we do here is we want to diversify the family into other businesses, not retail. So, I’m forbidden to do any retail related investment. So, we mostly do traditional industries, mature like mining, infrastructure or real estate. We have a cemetery company. We have a host of investments that we did recently. We have some technology infrastructure businesses as well.

Matthew Gordon: You’re spreading far and wide. Mitigating the retail risk.

Nicolas Banados: Not only to mitigate the risks, but all also to avoid conflict because retail is so important in Chile and Brazil and Peru and Colombia, that any retail investment that we do might have a conflict, so we want to avoid any conflict.

Matthew Gordon: May I talk about the natural resource space? You have got other investments in South America. Where does Serabi Gold sit in that portfolio? Was it one of the latest or earliest or…

Nicolas Banados: Well we have been Serabi Gold or eight years now. In natural resources, we have three mining companies, including Serabi Gold. So, we have another copper company and a gold company in Chile. We have forestry which sits within natural resources in Colombia. That was a Greenfield project. And power which is not a natural resource, but it’s related to in some way. I would say in all these projects we have been investing in the last 15 years. I’ve been with the company 15 years. We have always grown the company and built something. Sometimes like the forestry investment, we build it from scratch. In others like Serabi Gold and the other mining companies, we built a project that was already there, and we funded to build it, the construction of the plant or development of the mine or whatever it is.

Matthew Gordon: These are growth stories you’re looking for. That’s where you get the capital appreciation. Your money is long-hold, long-term money in that you will follow your money and give it a chance to grow, to breathe and become something.

Nicolas Banados:  Exactly. We’re not a fund, so we don’t have to exit. As long as we see a growth story continue. So, sometimes we have investments that have lasted for 25 years. Other investments have lasted all of 3 or 4 years.

Matthew Gordon: Got it. On more of a private equity type investment. But in that growth story, you’re looking for a revenue to start. That’s important to you.

Nicolas Banados: Yes.Within the initial investment that we do and the follow on or the M&A that the company that we’re investing in will do, we always look for, let’s say, projects that can be built just like the hot potato game. This is not what we do.

Matthew Gordon: It’s not a promotional thing.

Nicolas Banados: Not a promotional thing. We just want to make sure that whatever we buy, it’s something that could be built, generate revenues and positive cash flow.

Matthew Gordon: It’s safe to say when you invested in Serabi Gold, you knew what you were getting into. A space you understood, in a jurisdiction you understood and a story which you felt met the criteria which you’ve just outlined.

Nicolas Banados: When we invested initially in Serabi Gold in 2011 when the company IPO’d in Canada, we met Mike Hodgson and Clive Line, the CEO and the CFO. And what we did initially is that they had this project and we wanted to know more. Our initial funding was $200,000 and we funded the PEA of Palito. We funded the project with the objective of after getting that study, if the study was positive, then we will fund the CapEx of the project. So, that’s actually what happened after a few months, it took like 6-months, we received the study, it looked pretty good. So, we funded the CapEx. We went to the market a little bit. It was not so easy to market at that time. The project was built on budget on time. So, in some way the management built a track record with us, which was very important for us. Then we, Serabi Gold, bought a neighbouring project again. We liked it. We said OK we’ll fund the CapEx again. The market still was not so good. Well, that’s what we have been doing. Both are operating today. And then we started to look at other funding sources because we want other people to fund it as well.

Matthew Gordon: I think it’s safe to say that the market has been quite quiet for juniors or producers under a certain level for the last 6-years. You’ve given the chance for the company to survive, because you have a different mentality from institutional money, which needs to see revenues, returns or share price appreciation.

Nicolas Banados: I would say we funded it because, of course there is always the risk of the gold price, but assuming a conservative gold price, we said this investment that we are making, it will have a return regardless of the market, other than gold price. So, we felt confident that the share price can go up or down, but the cash flow would be there. We want to see growth over time, but we want the companies to deliver safe growth. So, it has to grow, but with conservative assumptions. We want Serabi Gold to grow and build other projects and merge with other ones that continue to work. Because in this industry being bigger, it scales the company up, the economics of scales, and reduces costs, that’s important.

Matthew Gordon: You’ve just got your second asset, which the guys are working out how to mine efficiently at the moment, that should double production That takes you towards 100,000oz pa number which everyone wants to see. Your view is that if there are other assets available, that you would encourage the team to consider some kind of acquisition or joint venture etc. that’s your mentality.

Nicolas Banados: Yes, as we have done in the past. We started with Palito, and then we bought Sao Chico, then we bought Coringa. We also see a very good opportunity for organic growth that can be done in parallel of these more inorganic…

Matthew Gordon: So how do you work with the team then? And are you sitting on the side-lines shouting at them?

Nicolas Banados: I sit on the board.We talk often. They run the company.

Matthew Gordon: Do they have the same mentality. Do you want to work at different speeds? Or do you have joined up thinking?

Nicolas Banados: We spend a lot of time aligning the strategy. It’s not that we get to a board meeting and they say one thing and I say the other. That doesn’t happen.

Matthew Gordon: You’re heading in the same direction.

Nicolas Banados: We head in the same direction. There is another board member from Fratelli called Eduardo. He’s a mining engineer and he has worked with Mike before Serabi Gold, other than Greenstone that also brings a strong mining experience. But we talk often, we visit, we help with the local knowledge. Mike knows Brazil very well but having a Latin American investor that can bring help with their banks, with other things and the culture, it helps.

Matthew Gordon: Your view is there’s some way to go on this. You’re happy with the way that the growth has gone, its cash flowing, it’s producing. What is the picture in your head about where Serabi Gold is heading?

Nicolas Banados: Brazil, it’s developed in terms of mining and developed in terms of iron ore, some other minerals, but not much in terms of gold. So, there is a huge opportunity for growth, exploration. It’s probably going to be more brownfield, greenfield projects, not that much because there are not many projects that we can just acquire operating producers. But there is a huge opportunity. It’s a big country with a lot of gold and we have the opportunity there, so we want to grow. Probably I would like to see that faster. But more than that, I would like the products to be delivered, to do it right, is more important. But if we can go faster, then that’s good news for me.

Matthew Gordon: Your team has known Mike for a long time and Mike knows Brazil and you’re heading in the same direction. The path forward all sounds rosy. But at some point Megeve will to monetize this.

Nicolas Banados: When Greenstone came in,we diluted because we thought it was not good for the company that one shareholder owned 50% or more to sell. And so, we decided to dilute, even though it was not the price that I wanted but we decided it was good for the company. Actually, it happened to be a good thing. So, in the future, we’ll probably dilute a little bit more. The company has to be seen as an independent company, it’s definitely not run by us. I’m in Chile. I come here, I can go to Brazil, but I am definitely not running the company. It’s run by Mike and Clive and the rest of the board and the management. And that’s what we believe is the company. And so, we can continue to support the company and we will continue to support the company. But we want also to have more liquidity to open spaces for other people.

Matthew Gordon: Do you think that you made a good investment decision and investing in Serabi?

Nicolas Banados: Yes. The initial investment, the timing of the market at that time was not the best. We were investing when the gold price was $1,800. So, and then it went down to $1,100. Who knew that would happen. Nobody. But I would do it again, definitely because we still see there is a huge opportunity ahead of us.

Matthew Gordon: Do you think they can become a mid-tier producer?

Nicolas Banados: Yes. And I think that Serabi’s also getting the attention of a lot of miners and when a gold company, mid or large cap, want to enter in Brazil. Who are the players there? There are not many. Who has built a mine in the last 5-years other than Serabi Gold. Or one or two?

Matthew Gordon: Not successfully.

Nicolas Banados: So, we havein some way we’ve become a target.

Matthew Gordon: Could you give us a bit of an overview of operating in South America? I know you operate in specific countries and South America, so again some of the questions that we get asked about, especially from AIM. North American investors are comfortable with South America. They know it, travel there, they holiday there etc. Europeans have seen some difficult times in South America.

Nicolas Banados: There are countries in which we do operate and others that we don’t. I would say only the one’s that we do – Brazil of course, Chile is another one, Peru and Colombia and we have one investment in Paraguay. So, we don’t do the other ones. In those countries we feel comfortable about safety. I can travel to those countries. I don’t feel comfortable traveling to some of the other countries. I can travel, I can do business.

Matthew Gordon: Tell me about Brazil, because this is about Serabi Gold, we’re talking about today and the fact that you’ve invested in them. So, Brazil, again, had a bit of a strange few years politically. Bit up and down economically.

Nicolas Banados: All the politics in Brazil happens in Sao Paolo and Rio and Brasilia. We are far from that. We are not in Sao Paulo. We are not in Rio. We’re not in Brasilia, we are not in the cities. We are up north in Parastate. It’s a remote location for business people, but it’s a very good infrastructure for a mining project. And we are very well received because there is not a lot of activity other than agriculture and forestry in that area. And so, we are very well received by the people, by the authorities, because they want new investment in this area.

Matthew Gordon: They want investment, they want jobs, they want taxes, royalties…

Nicolas Banados: The only good part of the political instability in Brazil is that the exchange rate is depreciated and that helps us. So, when noises about Brazil, that’s something people that are taking their money out of Brazil, that’s good news for us because that Real is going down and that exchange rate in in our benefit.

Matthew Gordon: Can I just ask about the Balsonero effect? Do you know much about what’s going on Brazil politically? Should people be worried?

Nicolas Banados: No, there may be more uncertainty in who’s going to run the country. Political uncertainty? Who knows what is going to happen? I don’t know. I have no idea who’s going to be the next President. There is no preferred candidate, but we are far from there. The only important change in environmental law because of Vale problems with the tailings, and there were some changes that we are complying to.

Matthew Gordon: But it’s business as usual.

Nicolas Banados: It’s business as usual. Of course, this trend is restricting some of the legislation. But we do comply with that because we set the standards at a higher level and it’s a completely different size. I mean, I don’t know if you know it moves like hundreds of millions of tons. Whether we are a mine that mines high grade, not high volume. We don’t fear Brazil turning into Venezuela… In Brazil, private property rule of law…. that’s going to stay.

Matthew Gordon: Mike. Clive.  Are they the guys to deliver growth for this company? The growth that you’re looking for?

Nicolas Banados: Yes. They have been for the company for a while. They have been through the tough times. They have delivered excellent results in building and operating projects.

Matthew Gordon: You trust you trust them with your money?

Nicolas Banados: Yes. We trust them with our money. In addition to Fratelli, I personally, I am aninvestor in Serabi Gold as well. I’ve put my own money in, my savings.

Matthew Gordon: So, you must trust them. Nicolas, thank you so much for talking to us. I wish you well with Serabi Gold and your other investments.

Nicolas Banados: Thank you very much. And thanks for having me.


Company page: https://www.serabigold.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 a neat stack of gold bars with 'Serabi Gold' written across the photo.

RNC Minerals – To Infinity And Beyon… No. No. Let’s All Calm Down.

A screenshot of Sheriff Woody pointing at a proud looking Buzz Lightyear.

If you’ve been following the topsy-turvy fairy-tale of RNC Minerals, you probably couldn’t help but notice this West Australian article. The contents will provide any prospective or existing RNC investors with more excitement than a late-night extra-terrestrial visitor: RNC is going to make us all rich tomorrow!

The interview cited in the article is with VP Exploration, Steve Devlin, who seems to be very upbeat about RNC’s current affairs, “We have a pretty good idea of what’s controlling this specimen gold now.” He followed up with, “From what we understand, we expect to continue to find coarse gold”

I’ve been attempting to discern whether these statements are new information or if they merely overstate what we already know; either way, it doesn’t seem to marry up with a recent interview with CEO, Paul Huet.

Consequently, some gold bugs are excited and are now claiming RNC knows the location of all its future Beta Hunt Mine coarse gold resource. That’s a monumental statement with nothing backing it up, other than a geologist stating they now have an idea of the geophysical controls.

Some shareholders are likely thinking of purchasing a red carpet for an extravagant Hollywood-esque celebration as the ‘Beta Hunt Fairytale’ churns out even more ‘whopper coarse gold specimens;’ after all, as Devlin says, “I’ve never come across a mine that has got so much coarse gold.”

I can feel the market’s excitement swelling. So, let’s suit up, and get ready to blast off, because… NO. NO. NO. Just STOP for a minute. Sorry to be a Buzz (Lightyear) kill, but you don’t seriously believe this utter exaggerated nonsense, do you?

Let’s get our feet back on the ground.

It’s incredibly important for people to understand the reality of RNC’s drilling program. RNC does not have any certainty when it comes to hunting down coarse gold at the Beta Hunt mine. As RNC drill, they are building up an understanding of the structures and the potential contact points of the coarse gold. Let’s say it again slowly… They have a better idea of what’s controlling the specimen gold now… No more. No less. It’s time to calm down a little. Just breathe. Breathe.

What RNC DO know.

It’s not all doom and gloom though. There are lots of reasons to be optimistic and hopeful of RNC’s future success; reality can sometimes be just as exciting. Consistent, robust success is no less glamorous than more lucrative coarse gold.

RNC is profitably mining 3g/t gold, at 8,000oz per month and processing it through their mill. As they process the 3g/t gold, there is a possibility they will come across large veins of coarse gold with a much higher grade. However, it’s important to remember RNC’s business model works well at 3g/t. Huet has been trying to temper and manage expectations in the market. RNC’s management are pragmatic, grounded, and calculated. The operation is currently operating exactly as it was intended to. The magic fairy dust comes with the reasonably regular large specimens of course gold; that always makes investors tingle with excitement.

A photo of a large pile of coarse gold.
High-Grade Gold From Beta Hunt Mine

Huet has made a lot of changes and has refocussed the company on gold. He is reducing costs, improving productivity, and renegotiating supplier contracts and royalties. Not to say that their Dumont nickel asset doesn’t have value, it does. He has briefed Johnna Muinenon, President of Dumont, to monetise Dumont. We are less clear about the timing of that, but one gets the sense it is coming.

Moreover, talking of nickel, Beta Hunt has a history of nickel; it used to be a nickel mine. Nickel is hot at the moment and people are getting excited about this.  There is a possibility of getting some nickel credit from Beta Hunt again, but there is a long way to go and an abundance of studies to be carried out before the company knows if the nickel component is even economic. So again, I like what the company is saying and doing, I like where it is going, but we need to reign in the speculation and attribute value to what we know and not what we hope.

One factor I believe could change the dynamic slightly would be if an ore sorter was added at Beta Hunt (just one for now). Engineering is required to work out the size, scale, economics, timing and cost. This could improve the productivity of the mine 20-30%, but it takes time. Huet is clear that RNC is not committing to anything until the engineering is done. However, some peer analysis suggests the payback is less than a year and the cost could be funded from cashflow. I’m going to allow myself to get a little but excited about this as it is within the company’s control and not hidden underground.

Business As Usual?

So, where does this leave us? Disappointed and downtrodden? No, not one bit. RNC is starting to provide moderate excitement to the market via its consistently impressive results. We need to see the Q4 results though. There is always a chance that somewhere down the line, RNC could locate more coarse gold which is great. However, there are no guarantees, and we have enough to be excited about without getting carried away. Let’s not be greedy, but my bet is that RNC Minerals delivers 27,000 oz of gold in Q4. Any takers?

CLICK HERE to watch the full interview.

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

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