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/

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

RNC Minerals – Has The Scale & Returns That Strategic Partners Need (Transcript)

A group of four mining workers stand proudly in front of a huge hunk of gold ore.

Interview with Johnna Muinonen, President of Dumont Nickel (TSX:RNX).

Production-ready, shovel ready, development-ready. Dumont Nickel has been positioned as a free ride for shareholders, but the reality is that Dumont may hit the market at just the right point in this cycle for RNC Minerals shareholders. Completing their upgrade of the PFS means that strategic partners will look at Dumont as a shovel ready project which is fully optimised say Muinonen.

We ask what the brief is from the board. What is the timing? What do you think about what you heard? We also discuss the timing and nickel market forecasts. How relevant is the EV revolution to estimates and at what point Dumont and RNC makes decisions about the timing as to when the company monetises this asset for RNC Minerals shareholders.

Let us know what you think about Johnna Muinonen. Does she make you confident? Does RNC Minerals know what it is doing?

Interview highlights:

  • RNC & Dumont: What is the Situation? Best Way Forwards: How Much Control Have They Got Only Owning 28%, What Will They be Able to do?
  • Analysing Dumont: What is There and How Expensive Will it be?
  • Market Dynamics, Nickel and Gold Cycles: How Does One Affect the Other?
  • Opinions on EV’s
  • Value Creation for Shareholders and Dumont Potential
  • What Can They Do in This Cycle and How Will it Affect RNC Shareholders? Financing Talks: Why Invest Now and Why are People Hesitant?
  • Production Values and Cash Generation Potential

Click here to watch the full interview.


Matthew Gordon: Hi Johnna. You are here in London.

Johnna Muinonen: Yes, for LME week.

Matthew Gordon: A lot of Nickel people here for that?

Johnna Muinonen: A lot of nickel people here for that. So, it’s always a good week to come to London because everybody’s here so you get to meet everybody.

Matthew Gordon: RNC is moving to be a gold focus business, but it has this very large nickel play in the shape of Dumont. So, how’s that panning out? Because if I look at some of your presentations from June, you have about 15-20 pages on Dumont. But if you look at the presentation today, 4. What’s happening?

Johnna Muinonen: With Paul coming in as CEO we are really a gold focus company. No question about it. However, what I’d like to talk to you about today is that we own 28% of one of the largest undeveloped sulphide projects in the world. And we feel that we can add value to RNC shareholders by looking at various options for Dumont moving forward.

Matthew Gordon: That’s 28%. Waterton own the balance. What do they do?

Johnna Muinonen: In 2017, we sold 50% of Dumont to Waterton. They’re a private equity firm. They are now our partners and Dumont. Dumont is fully 100% owned within the JV. We are now 28% and Waterton is 72%. RNC remains the operator and manager of the JV. We do all the technical work for Dumont as well and then work with Waterton in terms of looking at strategically moving the project forward. Financing and marketing.

Matthew Gordon: What does that actually equate to? You mentioned a phrase ‘for shareholder value creation’, as directive from Paul. Is there a time line on that? What are the options on the table? What are you thinking about doing here? You’re only 28% shareholder.

Johnna Muinonen: We’re not getting a lot of value for Dumont in our share price. We do feel that we want to make sure that we maximize that value for our shareholders. We are looking at strategic options. That was my directive from Paul on the board when I took on the role as president Dumont Nickel that we need to look at, what could we possibly do to actually get some value for Dumont to our shareholders, to RNC. And that could really involve several different things. We’re looking at options around spin outs, potentially a sale, potentially we hold it until nickel prices come up a little bit. So, everything’s on the table.

Matthew Gordon: The G&A is quite low. Not a lot of overhead associated with it right now.

Johnna Muinonen: So, let me explain a little bit the way the JV is funded. When we got into the JV with Waterton, Waterton funded our portion of the holding costs for 5-years. So, they funded a portion of the costs. Currently, all the work that we have planned that we’ve done to date, we pay 28% from within that funding. So, currently the work that we have planned for the next, say 18 months to 2-years is currently fully funded within the JV. So, it is a bit of a free carry for RNC right now.

Matthew Gordon: Waterton is dependent on you to inform them as to what to do. They’re a private equity firm, they’re not miners. They’ve stumbled across mining assets or they’ve funded mining assets, but they’re not by any means experts. How does that relationship work?

Johnna Muinonen: It’s been a bit interesting and we’ve been doing it for almost 3-years now. We’re getting pretty good at it. What it really works is the JV is structured, it has a board. Waterton has two seats on the board, RNC has two seats on the board. We have a technical committee below the board, which is made up of, again, two people from Waterton and two people from RNC. Essentially, the way it works is we look at the work that we believe needs to be done. And generally, this is in concert with Waterton. We don’t show up one day and say, hey, we need this amount of work. We do talk through and we meet regularly to talk through what work do we think would be value added? The feasibility was one of them, about probably close to a year and a half ago, we started talking about, OK, we have a feasibility study from 2012. It’s getting a bit stale. Costs are getting a bit old. We all believe in the nickel market eventually starting to rise and we wanted to get ready for it. And so, between them and us, we discuss what would the scope of it be? How would we run it? Who would be the engineer? And then once we sort of decide that the budget and the scope and get that approved through both the technical committee and then into the board, we then go off and execute.

Matthew Gordon: That’s the dynamic between you and Waterton. What about Paul Huet, the CEO of RNC. He’s a gold guy. You guys have also got to agree about the best way forward. So, it’s great giving you a directive saying maximize shareholder value. But, as you say, this is dependent on price of nickel now, when you believe the next cycle is and what you can do in this cycle, right?

Johnna Muinonen: There’s a lot of moving parts. And right now, we’re just starting to work through that, because the reality is there isn’t a lot of benchmarks out there about value for development nickel projects, because the reality is there aren’t a lot of development nickel projects out there. it’s not like copper or gold where you can go out and benchmark a whole pile of sales purchases. So, it does become a bit more difficult to sort of really quantify Dumont’s value.

Matthew Gordon: We know it’s a big project. It’s going to require a lot of money. You’ve got to bring in strategic partners. They’ve got to bring a lot of money, maybe technical knowhow, but maybe you guys got that covered. Give us an overview.

Johnna Muinonen: Dumont is a very large scale, low cost, long life asset. It’s a billion-ton reserve. It is going to produce in the first phase, which is seven years above 33,000 tons of nickel annually, expanding in year seven to 50,000 tons of nickel annually and over the 30-year life will produce 39,000 tons of nickel annually. We are located in the Abitibi region of Quebec in a very active mining region. We have lots of local support. So, we have all of the pieces in place to be ready for the next boom. If we look at what work needs to be done to get us into production, we’re talking about a 30-months to 33-months, both engineering and construction. So, from financing, the reality is that’s the lead time. But if you look around the world and you look within sort of low risk jurisdictions, there isn’t a lot out there of scale. There’s lots of smaller operations that will produce sort of say 10,000-15,000 tonnes of nickel a year in Australia, in Brazil, in smaller mines in Canada, in Europe. However, there’s really when you look at sort of the world landscape of sulphide deposits, there really isn’t anything or a lot that’s out there in a development ready, production ready, shovel ready type build like Dumont, which is what I find exciting about it.

Matthew Gordon: Dumont’s got that. There aren’t too many others, or if there are you can count them on one hand. What are the numbers involved? Because large scale means large cost.

Johnna Muinonen: We are looking at building a 50,000-ton concentrator which is large, but it is well within the scale of operation in the area. So, we are right located just outside of Amos Quebec. We’re on an all-weather highway and we have a powerline that runs 5km north of the project. And within 10km, there’s two other large open pit mines of similar scale. So, there’s lots of experience in the region on that sort of scale of operation. But it is a large project. It is $1Bn initial capital.

Matthew Gordon: That’s a lot of money.

Johnna Muinonen: Absolutely it is.

Matthew Gordon: Is it a normal number?

Johnna Muinonen: It is a normal number. When you’re looking at building a 50,000 tons per day mine and mill, you’re looking at $1Bn.

Matthew Gordon: So, that must restrict or give you a very good sense of who you can go and talk to?

Johnna Muinonen: Oh absolutely.

Matthew Gordon: And what are they thinking? Because they’re looking at ‘can we do something this cycle?’ Are you guys ready? Or is it next cycle, in which case, when’s that?

Johnna Muinonen: If you had asked me the same question 10 months ago, people would’ve been like ‘$4 nickel, $5 nickel’, not so sure. I think over the last sort of 3 or 4 months of interest we’re getting more calls. We’re getting more calls, getting more inbound interest by various people who do want to talk. And they’re not small players. They’re people that want to talk about when does it fit? When are you ready? What does it look like? And the $1Bn is a big price tag. But when you start to break it down into pieces, you look at there will be a senior debt facility in that probably to the tune of about $500M. There’ll be some equipment financing. The equity cheque at the end of the day to pull it off, take a loan as part of that, maybe a small stream of the precious metals, potentially. The equity portion of that is probably in the $300M range. So, when you start to break it down like that, it’s not we’re going to go out and build $1Bn… We’ve got to go raise that.

Matthew Gordon: And you’re 28% of that?

Johnna Muinonen:  And we’re 28% of that. Exactly.

Matthew Gordon: And so, again, it depends on what’s happening in the rest of RNC that will determine what the cost of that money is and where indeed where you put it in, project level, presumably. How do you go about having those discussions with people about the cost of that money and how do you retain as much as possible, because your brief is’ shareholder value’, right?

Johnna Muinonen: Yeah, absolutely. Absolutely.

Matthew Gordon: You’re 28%, so you’ve got to create some shareholder value, more than it is today.

Johnna Muinonen: Which is arguably not much, I’ll admit that.

Matthew Gordon: I certainly think you’re not getting much credit for it and I think it’s partly the company has said, ‘Oh, and you get Dumont for free’, that kind of strapline, which is a little bit disingenuous’.

Johnna Muinonen: Yeah. No, no, I mean it really is. I have heard that said ‘oh and you get Dumont for free’. Well I mean if you look at it, if we look at even the two commodities, I realize we are a gold focused company, and our real focus is on the gold assets in Australia. No question about that. But in a rising nickel price environment, where you’re starting to get interest and excitement around people realizing the world’s going to need a lot of nickel in about five years’ time. Where are we getting that from? Dumont has the real potential to add value to RNC.

Matthew Gordon: Is that part of your equation then? It’s like maybe we’re be better waiting for five years?

Johnna Muinonen: We’ve talked about it. Absolutely. Because Dumont is funded within the JV. And I think that’s where we get that whole ‘oh, we get it for free’. You know, the fact is, is that we are funded for several years within the JV. And so, it is a bit of a free carry. So, it is a bit of nickel exposure, future opportunity. However, in the short-term, looking at our shareholders, looking at the focus of the company, we may want to do something sooner rather than later. And like I said, we’re not about to put up for file, so we’re not in a rush. We have cash in the bank.

Matthew Gordon: You’ve got cash in the bank. The costs of running this thing for another 5-years is negligible in the scheme of things. Not negligible in terms of dollars. You’ve got salaries, permits to maintain all of that kind of thing. But you’ll do the math and work out whether you just deal with it now, focus on gold or you wait 5-years because the upside could be because of demand story. It’s going to be better for shareholders.

Johnna Muinonen: And it’s hard because you can’t predict the future. And so, if you look at today and you say, well, maybe the best option for shareholders, do something now, to clarify the structure, be a pure gold company. Maybe that has more value now than having two assets. And being, personally, I know people say it’s confusing. Are we gold or are we nickel? What are we? So, maybe there is value, but it is a bit of a…nobody has a crystal ball. So, you can’t really say, well, in 5-years’ time…

Matthew Gordon: It’s not distracting you financially or otherwise?

Johnna Muinonen: We have a team in Australia that’s fully dedicated to the gold. That is their focus. We have a smaller team within Canada that works on the Dumont story.

Matthew Gordon: How does RNC make the decision about timing? Because obviously the gold part of the business is moving along. It’s normalizing relationships in the marketplace as people understand the business plan. Is there any pressure from what’s happening in the gold side business, which affects your decision making on the nickel side?

Johnna Muinonen: I think the gold side is ramping up. We’re coming along there, the gold side. Like you say, it’s normalizing. We’ve seen a lot of success recently. We’ve hit a couple more pockets of the higher-grade gold. So, that is moving forward. And really, with Graham in Australia and Paul, they really have that managed. Because Dumont is funded within the JV for RNC’s portion, there’s no real immediate need for us to take cash from profits in Australia and funnel it towards the nickel. So, at the moment we are under no immediate pressure to do anything about it. However, we are in an interesting nickel market right now, very much more so than when we completed. So, when completed the fees back in June, nickel was $5.50 a pound. Nickel is now hovering between 7.50 and 8 dollars a pound. The stocks on the LME are almost at an all-time low. So, we’re in a very different place. So, we want to make sure that we do look right now at taking advantage of this current nickel price to see if there’s that appetite. But at the end of the day, we’re not going to fire sale Dumont.

Matthew Gordon: Sure. But neither are you going to decide rashly, because nickel is famously volatile, right? You’ve been through various super cycles of nickel and they last a long time. And I think we talked about it, bits of scrap metal getting to the market if the prices stay high for long enough. And that’s going to again, give us a false impression of supply for a while.

Johnna Muinonen: Absolutely. I agree. If we look at right now, this recent price action is really somewhat artificially generated by Indonesia exclusively. Where Indonesia has restricted the export of ore into China to make NPI. So, originally, they had restricted as of the end of the year, but then people were starting to massively export ore above and beyond their current permits. So as of Monday, they announced that it was shut down completely. Whether or not that’s going to be permanent or going to be for a few weeks until they figure out what’s going on, we don’t know. However, it’s definitely a supply control versus demand. With this rising nickel price environment, it is going to draw out stockpiles of stainless-steel scrap of ferro nickel that has been sitting in people’s backyards waiting for nickel to go above five or six dollars.

Matthew Gordon: I think we know which backyards.

Johnna Muinonen: Yes, we do. So, we will need to chew through that as an industry.

Matthew Gordon: How long?

Johnna Muinonen: Probably, next year into Q1, Q2. It’s not a huge amount. However, there is some. And stainless is still pretty soft in terms of the demand side of things.

[17:39] Matthew Gordon: And that’s going to affect prices?

Johnna Muinonen:  It will. Absolutely.

Matthew Gordon: But it will bounce back up?

Johnna Muinonen: I mean long term, we have seen year on year deficits in nickel production into the industry. We’re on our third year of deficits. I believe next year the International Study Group is predicting another small deficit. We are seeing these deficits. We do need new nickel to come online at some point in time. And that’s really just the stainless-steel story, you start to overlap the EV’s story on top of that. I think the challenge with EV’s is nobody’s quite sure how fast, how much and when. But it is definitely out there. EV’s especially within China, within Europe, all of the large major auto companies are now announcing major plans for EV cars to come out, various models. But it’s a bit uncertain about timing. And I 100% believe it’s coming. I personally drive an EV. I think that once you drive them you realize exactly why people love their EVs. But it is coming. I do think it will probably be slower and I think if you really look at the industry on the OEM side of things, specially within the historical the OEMs, they have so much infrastructure built into building internal combustion engine cars. That is going to be a very hard tide to change quickly. They have billions of dollars invested in plants and invested in manufacturing lines. Plus, you just need to ramp up the battery and cathode supply side. There’s a huge amount of capital that will need to be spent to actually make all these batteries. It’s not just tomorrow. So, when we look at Dumont, the one thing I’m very excited about is if you look at the world of nickel and you look at nickel sulphide deposits the reality is there just aren’t that many or any nickel sulphide deposits that are currently permitted in a low risk jurisdiction that can produce something in the order of 30,000 to 50,000 tons of nickel annually for 30 years. And that’s where I think Dumont’s value really is.

Matthew Gordon: How long did the last cycle last?

Johnna Muinonen: Oh, I mean, the down cycle, the reality is that we haven’t seen a true nickel bull market since 2007/2008 really. I mean, there was a bit of a bull market 2010 when RNC first IPO’d. We sort of lucked into a window there back in 2010, but otherwise it ran up a little bit 2013. But we haven’t been in a true bull market for a while.

Matthew Gordon: We’ve seen some pretty big numbers forecast. What are the conversations internally with Waterton.

Johnna Muinonen: There’s sort of two conversations. One is how do we maximize value for RNC shareholders? And then how do we maximize value for Dumont within the JV? And what does the structure of the JV… It’s a JV between two partners.  

Matthew Gordon: Why are those two separate things?

Johnna Muinonen: Not necessarily. Maybe they get cleared up in one step. Well, in terms of ownership, in terms of how Dumont is owned. And maybe there’s options around things like potentially… to get to your point of you can’t predict the future, looking at an alternative for Dumont that separates it in some form from RNC, but potentially RNC retains an interest of some sort of upside potential. I don’t know exactly what that looks like. But maybe there’s something there where you kind of look at doing the best of both worlds. You create a clean gold company, a clean nickel company but RNC at some level retains some sort of upside interests. We are talking about that, looking at that, what does it look like? Adding a new NSR onto Dumont’s probably not doable but revamping something around that or something. But there are options that we’re looking at because that really for RNC shareholders, that would start to reduce some of these short-term risks of just selling it. It removes the management in Operation and Distraction.

Matthew Gordon: So, these are not unusual considerations in the mining space and those conversations have happened before. But if I’m a long-time, long-suffering shareholder, I am asking the question, ‘how long do you guys need to monetize this?’

Johnna Muinonen: I’ve been there almost 10 years now.

Matthew Gordon: 10 years. Mines can take 10 years to get into operation. So, this has had, because of the nature of the nickel market… I must explain here. It’s not like gold. It’s not like copper. So, you can go in fits and bursts, but people are saying, ‘just get it over and done with. I need to see something now’. What do you think it could do for RNC if you did do something this cycle?

Johnna Muinonen: If we did do something this cycle, first of all, in the short-term, there might be a potential to offer RNC some sort of initial consideration. RNC has some debt outstanding. There’re opportunities for capital spend in Australia as well, potentially. If we could monetize Dumont in some way, some short-term value. I think longer term having or retaining some sort of upside consideration is really where that’s where you get exposure to the nickel prices. The last time nickel ran, we went from $1.98 up to $25 a 1lbs. Nickel is the most volatile of the base metals, it goes the highest and it goes the lowest and it dives the lowest. So, having some exposure to that long-term, I think that that’s how we go about adding value.

Matthew Gordon: What do you think you need to deliver for this cycle to be able to put you in the position, to give you the opportunity to have those conversations?

Johnna Muinonen: We’re completing the updated feasibility study. We had to do that just because if we had not done that, we would be trying to market Dumont with an outdated study. So, that was done. The next stages: one is off the back of that study. We need to make sure that our stakeholders, which include the government, including the local communities, are all updated on the study, as well as updating things like closure plans, updating looking at our CFA’s, making sure that we don’t need to do anything there or if we do, start to take care of that. Because what we want to make sure is we build Dumont as a shovel ready project, which essentially means what is shovel ready? Shovel ready means that you have your permits in place. You have your land ownership. You have your surface options. You have your mining lease. You have your closure plans. You have your technical study up to date. So, making sure all of those things are maintained because updating your Feasibility Study. That Feasibility Study forms the basis for all of those sorts of feed forward information flow to the government as well. So, the next in the short-term, making sure that we have all of that, maintaining our shovel ready status, that is very important. A couple of things, some of the more optional ones, are really around looking at some of the value-added opportunities that we saw come out of Feasibility Study. So, in the feasibility study, we saw some opportunities around automation, truck automation, just like the EV story, just like all of the things, haul truck automation is coming along faster than… so, by the time Dumont gets into production trucks of that scale will almost all be automated. So, we want to look at that because that adds significant value. We want to look at potentially magnetite off-take. We want to look at some technical equipment choices. So, there are a few things we’d like to look at over the next sort of 6-months to look at how is there an opportunity to add more value to Dumont? Because that really speaks to investors who want to come in to say, what are my upsides? Here’s the project, what else could I get?

Matthew Gordon: But you can have these conversations now because you’ve got to leave something on the table for them because they can go, well, maybe we automate this. There’s an opportunity margin for them, right? Are you having conversations now?

Johnna Muinonen: We’ve had ongoing conversations with people over the last three to four years.

Matthew Gordon: Who?

Johnna Muinonen: The major mining companies, nickel companies. We’re talking with downstream OEMs. Battery companies, as well as trading firms.

Matthew Gordon: But some of those are more realistic like those OEMs, EV revolution, a couple years out, mining companies, they know who you are and you’re one of a handful of big, large scale operations for nickel. So, why aren’t they knocking at your door now?

Johnna Muinonen: I think they’re keeping they’re in a bit of a wait and see approach right now.

Matthew Gordon: What are they waiting for?

Johnna Muinonen: I think they’re waiting for a couple of things. I think that they’re waiting for the nickel demand side of the story to become much stronger.

Matthew Gordon: They’ve got to have a view on this, because they must be looking at nickel, reading the same reports I’m reading going, it’s all good, right? So, why not come in now? What’s stopping them?

Johnna Muinonen: A history of greenfield nickel projects that have not been successful. Now they’re much more complicated than ours. They’re very much higher risk jurisdictions, much more complicated flow sheets. Dumont is a very standard mine and mill, as opposed to some of the very complicated HPALs or a laterite projects that have been blown out the water.

Matthew Gordon: By complicated, do you mean more expensive?

Johnna Muinonen: Technically complicated, which then leads to more expensive, significantly more expensive. We are a mine and a mill. On a scale of simple, people know how to build mines and mills.

Matthew Gordon: People should be attracted to that. You’re saying people still just aren’t committing because the nickel price is doing what they think it should be doing.

Johnna Muinonen: I think that they’re still in a wait and see mode. Absolutely they have forecasts. I mean, absolutely. They think that the future of nickel is, ‘we are about to enter a bull market over the next 12-months to 18-months’. They’re keeping in touch. They’re making sure, knowing what’s up, knowing what’s happening. But I think people are waiting to see the demand side start to get a little bit stronger. I just think that with the supply restraint in Indonesia…We were at $5 a pound 3-months ago. I just think most people haven’t quite caught up and there’s still there’s a bit of a disbelief that now we’re between $7.50 and $8, let’s just have a wait and see for a bit.

Matthew Gordon: They want some consistency.

Johnna Muinonen:  Do we make it through this next quarter? Do we see the price fall back? And if so, how much does it fall back? How much scrap is really out there that’s going to come into the market?

Matthew Gordon: That’s a question of pricing. How much they are going to pay. Not a question of if, it’s a question of what’s the optimal timing for us to work out how much this is going to cost us? Is that what you’re saying?

Johnna Muinonen: I think in some ways. I do think that whole EV story… I do believe in the EV story. But I do think the question on speed that it’s going to advance and the timing. I think that most people are still somewhat bearish on some of those estimates. And so, people are still taking that wait and see. Everybody believes that the EVs are coming and that batteries are going to be a significant consumer of nickel moving forward. But timing! Is it really 2023 or is it 2025? What are we really going to need this nickel to come on board? And then with the run up that’s been so sudden and somewhat unexpected, I think people are just sort of wait and see. So, keeping in touch and making sure they know what the updates are, what’s happening.

Matthew Gordon: If someone puts a $1Bn, gets this thing built out for you. What do they expect to make?

Johnna Muinonen: If you look at the free cash flow of the project over the life of the deposit, somewhere, EBITDA $200M annually. It’s a large cash generating project. It is a low cost. Overall our C1 cash costs over the life of mine (LOM) are just over $3 – $3.22 are all in sustaining cash (AISC) per pound on a U.S. dollar basis is just under $4 at about $3.90. So, when you’re looking at projects to invest, because the thing about nickel, I talked about it before, nickel is the most volatile of the base metals, it jumps the highest and it falls the lowest. If you’re going to invest $1Bn in the project, you need to make sure that that $1Bn is going to be paid back. You have to make money.

Matthew Gordon: And there’s a cost to it.

Johnna Muinonen: And there’s a cost to it. There’s interest there. There’s a cost to that to everybody. The reason why I believe in Dumont, one of the reasons, is just because of its scale. So, we have a 30-year life project. That 30-year life allows you to take advantage of those peaks and valleys of the nickel cycle. And because it’s such a large scale, low-cost project, you are profitable along that that entire time. Any investor that comes in has that time on their side to be able to get back their investment. Because nickel, unlike copper, it does really go up and down. When you look at some other projects that are $300M – $500M to invest, but only are 10-years, you can really easily miss the price cycle.

Matthew Gordon: The cost of building the plant, aggregated at over 10 years versus 30 years. We understand that. Johnna thanks very much for coming in. Brilliant to catch up with you. We understand your brief. Monetise this for shareholders. That’s what they want to hear from you in the next few months. How you going to do it, what are those discussions are developing and what it’s going to mean for them.

Johnna Muinonen: Our focus is shareholder value. And the board and Paul have given me very clear direction around looking at what we can do with Dumont to maximise shareholder value.


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

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A group of four mining workers stand proudly in front of a huge hunk of gold ore.

Regulus Resources – Credible Copper Company Creating Cash Coppertunity (Transcript)

A map of Regulus Resources' assets including the Antakori Project.

Interview with John Black, CEO of Regulus Resources (TSX-V:REG).

In the mining country of Peru, Regulus Resources specialise in identifying promising copper or copper-gold exploration projects. Large copper and gold projects are in high demand and short on the ground.

This team thinks they have the perfect asset for a major mining operation to extract. Regulus has a market cap of $120M and while the share price rose in March to $1.92 after promising drill results (34 holes with 820 meters of a 0.77% copper equivalent), they’ve now receded down to around $1.36.

Regulus Resources is an excellent example of a copper/gold company in the evaluation period of its life cycle. There is clear potential exemplified by the level of investment by management in Regulus projects, the experience and track record of the management team, and their strong list of assets.

However, Regulus Resources has work to do before investors can think about scheduling an extravagant party with no expenses spared upon the sale of their shares. While no hitches are expected, Regulus Resources is still waiting for a permit to come through for their asset in the North of the property, which isn’t the fastest process in Peru. Liquidity of their stock is an issue: a symptom of the company’s position in its life cycle but also because the stock is so closely held by a just few insiders, c.70%. Regulus Resources is conscious of this as they enter their next round of fundraising.

Capital is available but management must decide what type of investor they want to come in at this stage. Regulus Resources needs to convince prospective retail investors their copper/gold project has what it takes. This can take a significant amount of time and not all investors are willing to play the long game.

Regulus Resources is in a heavy drilling phase that has only just begun and there is lots of work left to do and funds to raise. The management’s track record suggests that they are capable of creating real value for shareholders by developing exploration assets. While Regulus Resources looks like a safe, stable investment, with solid if unspectacular long term prospects, it looks unlikely to be making shareholders money anytime soon; that will require them reaching a point where larger mining operators come in and bring it through to production. For the patient investor, money is certainly there to be made, but just how long is the long-term? What did you make of John Black? Let us know in the comments below.

We Discuss:

  • Company Overview
  • Update on the Jurisdiction: Permitting Processes in Peru
  • Share Price Bump in August: How are They Continuing to Grow the Share Price: Working the Cycles: Can They Raise Money and How?
  • Focus and Strategy: Have They Got the Money to Make it a Reality?
  • Creating Value: Should You Invest in Regulus Resources?

Click here to watch the interview.


Matthew Gordon: We spoke to you back in the beginning of May. Can you give us a one-minute summary for people new to the story?

John Black: We have a company that we’re a group of seasoned explorers and we specialize in identifying large copper or copper gold projects at a relatively early stage, but at a stage when it’s clear that it will be a fairly strong project. We capture those projects, we drill those out, and then ideally, we deliver a large, economically robust resource to the market at a time when major companies are looking to acquire these type projects.

Matthew Gordon: You have project’s in Peru. Peru’s a well-known mining region and district. You’re surrounded by some big name companies. How have things been since we spoke in May.

John Black: When we spoke in May, we had just put out first resource estimate on the project. So, between indicated and inferred resources, we announced over a 500Mt resource of attractive copper gold grades on the project. And we were just entering into our Phase 2 drill program. Our Phase 2 programs designed to be about 25,000m. We’re about halfway through that program and we’ve been announcing some very eye-catching drill results from that drill program.

Matthew Gordon: You’re waiting for a permit to come through. Any reason to believe that that won’t come through?

John Black: No. The good thing about Peru is it’s a mining country. It’s a fairly standard process. It’s a very transparent process in the sense that there’s no jumping the queue or anything like that. The frustration that many of us have with Peru is that sometimes it’s a slow process and you don’t know exactly when it comes out. But ours is fairly straightforward. And it’s just a wait now. We anticipate that we’ll have the permit by the end of the year.

Matthew Gordon: And no challenges or issues from that neighbour?

John Black: No, not at all. No. The fact that we’re next door actually helps us. We’re more of a brownfield situation and we’re in Northern Peru, we’re in Cajamarca. We’re in an area that is a mining community in the area. And we don’t have indigenous community issues or anything like that. We have good support from the local communities on moving forward. So, it’s just a just a process. The process now involves a number of other ministries, not simply just mining. You have to check off with other interests in the country. And that’s good for us. That means that it confirms that we have broad support to go forward with what we’re doing.

Matthew Gordon: When we spoke in May, your share price was about $1.45. It’s about $1.30 at the moment. But you’ve had this peak, had a bit of a run up in August, September. Can you tell us why that was?

John Black: What we’re seeing and is an interesting pattern in our space right now as we drill the project out. We’re drilling lengthy holes into a fairly large deposit. And so, we have drill results coming out about every two months. And we’ve been announcing some rather spectacular results. Results that came out in September included hole 34 with 820m with a 0.77% copper equivalent. Eye-catching results on that. That catches the market’s interest. We tend to see a run up in price. But we’re fighting headwinds right now with trade tariffs affecting copper price and affecting sentiment in the copper space. And so, we tend to see a pattern where we have good news results in a run up and then we drift back off until we get the next good news coming out. We believe the results we’ve been putting out warrant more steady, positive results that accumulate over time on this. But our trading pattern has resulted in kind of flat for the year.

Matthew Gordon: Yeah, it’s kind of flat overall. I was just interested in that peak because you went up to circa 175, then back down at 130. It dropped off rapidly. And you’re putting that down to trade tariffs and commodity price as a result of the trade times. Right? But are you at that kind of funny stage in terms of your drilling. You’ve got about four rigs, is that right, in the ground at the moment?

John Black: We’re currently drilling with four rigs. Yeah.

Matthew Gordon: OK so that’s giving you meaningful data, that you’re that kind of funny stage where you’re waiting to tell people what it is that you think you got there in the ground and how do you sustain, how do you consistently convey what it is that you’re trying to do or trying to be to enable the share price to actually start going upwards?

John Black: Well, the good thing is this is not the first time we’ve done this says as a company. Our business model is to get on a project like this and drill it out. We have good access to capital, we have good supporters, good shareholders on this. And so, we focus on steadily drilling the deposit out, demonstrating the size of it and de-risking it. It’s kind of a funny market that we’re in right now is there’s a lot of positive sentiment for copper in particular. And when you talk to major mining companies, they’re all trying to position themselves to have large copper deposits. There’s a general consensus that there will be a looming shortage of copper as we see further electrification of vehicles. And quite frankly, we’re not putting too many new mines on in production is an industry right now. However, in the short term, there’s uncertainty. I mentioned the trade tariffs. It’s partially centred around that, maybe global economy as well on this. And so, I’ve described it as the most positive yet, cash poor market that I’ve seen right now, where everybody seems to be in agreement that copper is a great place to be, but everybody’s waiting for it to happen. And so, everybody’s watching. They’re taking a look, but they’re afraid to be the first movers on this. We see this commonly in the market when we’re on a market, bottom or lower spot on this. Nobody wants to go first. Everybody wants to wait. Everybody agrees it’s a good idea, but they need to see those breakouts and sustained breakouts. Quite frankly, it’ll be mostly in copper price for us if we see, for example, trade tariffs resolved between the US and China or a general more positive feeling on global growth. We will most likely see the copper price move and then names like us will be in a very good position because we’re working on a large deposit, one that’s very attractive for people to acquire. And so, we kind of look one to two years out is where we want to be, and it’d be nice if our share price was steadily climbing and that, but we know we’re building the base so that when the positive sentiment comes back, then we’ll probably see a rather sharp uptick for names like ourselves and many others.

Matthew Gordon: So, what’s the thinking for you? I mean, how do you deal with these cycles? OK so you’re a bulk play. You’ve got some credits with gold, silver. So that’s kind of appealing. But it’s very it’s a low-grade belt play here. Do your shareholders like, Route One I think one thing was someone who was on board, do they say we’ll continue to follow our money? We believe in the thesis, we believe in this management teams’ ability to deliver this project. Will they continue to fund you or are they now sitting back and also waiting to see what the market does?

John Black:  No. Route One’s, a very steady supporter for us. They’ve actually encouraged us to go out and take advantage of these low spots in the market, both to acquire projects. Quite frankly, the Anta Kori project we had, we acquired it in 2014 when the market was even a more difficult situation right now. So, we like these soft spots in the market. It’s a good time to acquire projects. It’s a good time to work on them. It’s easier to get drill rigs, prices are cheaper. Good qualified people are available. So, the important thing is to have access to capital and be able to work steadily in these periods where the market’s struggling a little bit more. Then we’re building up the resource, we’re building up the project that we want to have when the market hits that boom. And then the thing about our business is it’s very cyclical when we have these low spots, we always see the high spots come back on it. So, it always seems a little scary while you’re waiting for them. Yes. But we’ve been through this a few times before. And that’s the important thing, is to work steadily, focus on project quality. You want to have a project that stands out. We believe we have that with Anta Kori. You mentioned a key point is it’s not only copper on this project as a strong precious metal’s component to very significant gold content. So, we kind of have some protection on metal prices. Copper is down a little bit now, but gold’s up a little bit, too.

Matthew Gordon: Where you were in 2014 and having Route One encourage you to buy something in 2014 is different from today. You didn’t have assets then. You have assets now. The market, the cycle is at a low point now. What is Route One telling you to do today? Because they’re not saying go out and buy more projects, are they?

John Black: Well, in general, and it’s not just Route One, we have a number of backers that encourage us to do what we do, as well as our own personal philosophy on this is it right now is Regulus we’re on to a very, very good project. We’ve recently spun out a new company called Aldebaran on a very encouraging copper gold project in Argentina as well. And so, we’re not aggressively seeking new projects right now. But you always keep your eyes open. Projects like what we have with Anta Kori and Regulus and what we have with Altar and Aldebaran are very hard to find. It’s an industry we’ve been able to, as juniors, put our hands on a number of these over the last 15 years or so, reveal the full potential for them and sell them to majors. It’s been a very good business model for many of us to do. We were very successful in our first company Antares when we discovered the **** deposit and sold out to First Quantum. We’re back on another one that we think we can do again. But it’s harder to find those right now. And so, groups like Route One or others that back up are always encouraging us to keep our eye out if we see another one of these rare, rare opportunities. We’d certainly tried to put our hands on it, but we’re, as you mentioned an interesting point, right now we’re onto a very good one with Anta Kori and Regulus. And so, we’re really in the stage now where we’re focusing on drilling it out, showing the full size, de-risking the project, having it ready so that when the market enters into a stronger phase than it’s in right now, interestingly enough, that’s when the major companies acquire projects is when copper prices are high. It’s because they’re cashed up and they’re looking to grow.

Matthew Gordon: I understand that. So that’s the M&A components. And then towards the end that you think answered the question, I was going to ask. So, what have you as a board or a management team decided to focus on now in this low cycle? And have you got the cash to be able to do that?

John Black: Yes. Essentially, in these low cycles, capture a good project, which we have and now focus on drilling it out, showing the full size, de-risking it, having it prepared to be ready when the market comes back more strongly than it is right now. And we see the roots of that. We see the major companies clearly indicating they want to have very good projects and they’re looking. We’re not quite into a strong M&A phase. Capital right now, we have we have good, strong supporters and for good projects we’re seeing access to capital is, I wouldn’t call it easy, but it’s there for good projects and good teams. And particularly those with a gold component. There’s been a flurry of financings for gold related projects recently and we can play. Both aspects of this project as being both copper and gold say.

Matthew Gordon: So relatively easy. And I know you’re stressing the word relatively. Where would you be getting this money from? You’re not yet looking for strategic. You want to maintain control, to prepare, as your word, the company to get the best outcome for your shareholders. Is that fair to say?

John Black: That’s fair to say. Yes, absolutely.

Matthew Gordon: So, who are you talking to? Or who will you be talking to with regards to raising the next round of capital? What type of money are you expecting to bring in? How much? What are you going to do with it?

John Black: Well, there’s been an interesting phenomenon really in our space recently. If you look at most of the major financings that have been done for larger amount of moneys for serious drill projects. We’ve seen a migration away from the traditional private placement in our space and we’ve seen an increasing number of strategic placements, major mining companies, putting money into interesting projects that they want to monitor, even at a relatively early stage. And in some ways, it’s acting as a proxy for their expiration efforts. They’ve realized they’re not generating sufficient projects themselves. So, they just get a toehold into a group like this. And so that’s something we’re very aware of and we’re constantly in discussions with potential groups to do that. And then the other alternative is to do a more traditional private placement, which has been difficult for us, partly due to competition from other high risk, high reward opportunities like the cannabis industry or prior to that cryptocurrencies. So that’s drawn a lot of funding away from us. We’re starting to see that come back into the mining space, particularly for gold right now, so right now we really have two principal avenues that we’re exploring. One is a strategic placement from a variety of major mining companies or private equity funds that want to have a toehold into an interesting project like we have or always with the opportunity to go in a more traditional private placement. They have their pros and cons. The strategics are very attractive, but you have to watch out for strings attached. You can’t be wed to one company by simply having them make a minor placement into you.

Matthew Gordon: Right. And with all your experience and your track record, what’s that telling you with regards to the amount of money that you think you’ll need to have in the kitty to be able to prepare this company for some kind of exit?

John Black: Well, our business model requires us to do a lot of work on a project. When we acquire the right project like we have our hands on right now, we’re into a heavy drill phase on this as we drill that out and so our burn rate, the amount of funding that we need to progress the project is approximately 20-$25MIL Canadian per year. We’re nearing the point where we need to get set up for next year on this. And so that that would be approximately the amount of money somewhere between $15-20MIL is what we’d be looking at raising in any variety of manners between now and, say, the end of the year.

Matthew Gordon: Right. And then I guess then comes the question again, using your experience, you’ve been there, done it before, is do you think you then reassess the situation at the end of next drill season and then work out what you want to do? Or do you say, well, that’s the moment where we’re going to have meaningful conversations to try and monetize this, have a monetary event?

John Black: Really, we’re right on this as we’ve put out our first resource in March, we’re in our Phase 2 drill program. That’ll be about 25,000 meters. We anticipate we’ll finish that about the end of Q1 or sometime in the first half of next year, which will allow us to put out an updated resource about mid-2020. At that point, we’ll make a decision on whether we put a preliminary economic assessment around that or if we still feel the project is quite open for expansion we would enter into a Phase 3 drill program. Our strategy really is to demonstrate the full size of the project and identify the best areas of the project before we enter in to putting economics around it. You really don’t want to start too early on that because you want it to have the best foot forward when you put your first look at what the project might look like, the full potential of the project.

Matthew Gordon: And where do you believe that shareholders get the most value? At what stage? Obviously, the PEA, Phase 3 I think you’re calling it, has some benefits, but PEA’S you know, I think they vary in terms of the numbers, in terms of what they tell you. It’s preliminary. Do you think that the company will see more of an uplift if it gets into a pre-feasibility stage? Or do you think a PEA is the point you could exit just as meaningfully?

John Black: If we look at the lifecycle of a junior mining company or really any mining company on this, there are two really notable points when you see a lot of increase in value in projects. Well, one is between the discovery point and approximately the completion of a pre-feasibility study. It’s the drill definition. You’re onto a good project. You’re revealing the size of it and you’re de-risking the project to confirm that it could be economically developed. There’s a very sharp increase in value in the project at that point. And then there’s another increase in the ramp up right before you go into production. But sometimes that space between completion of a pre-feasibility study and production is a long period of time and it’s a risky time for a single asset company like ourselves. And so, our business model is to identify projects as close to that discovery stage as possible. Ideally, we acquire them after the discoveries been made, but maybe not fully realized by the market or the group that is offering it to us. And then we reveal that discovery. That’s exactly where we’re at right now in the Anta Kori project. And then typically we notice that up to about a pre-feasibility stage, it’s a good time for us to be investing money and showing that. If we’re on a very strong project at the time, we complete a pre-feasibility and we’re in a good market, a robust market with good metal prices, it’s highly likely that a major mining company would like to take it from us. It seems strange that they let us add that much value to it, but they want to have certainty it’s there. So, it’s not simply it’s a large project. They want to have it de-risked and be comfortable with it. So, we typically see our role as working up to about that pre-feasibility stage. And then ideally, we pass it on to a company that has skill sets to develop the project. We’re not miners. We’re good at identifying projects and discovering them, revealing the full potential on them. But then it’s best for us to pass that on and that results in an earlier return for our shareholders. So, we like that early monetization at about a pre-feasibility stage. A good project and go to a PEA. Sometimes they take a little bit longer. It depends where the market is in terms of price and how robust the project.

Matthew Gordon: Right. So, people think to have a view on the price of copper at the moment, looking at chat rooms and forums, people seem confident in the management team’s ability to deliver this. I think the question’s always been around timing. That’s their only concern. It’s not a case of if, it’s when, which is good. It doesn’t do much for your liquidity, though. So, what do you want to say to new investors or potential new investors looking at this as an investable proposition?

John Black: Yeah. For somebody looking at a project, liquidity is an issue that we were quite conscious of as we go into a round of raising additional funds. So, that will be a consideration on when we bring in new funding. It’s nice to go to one source, or same shareholders or steady hands that way. But we do realize that liquidity is important. So sometimes bringing in new investors could be advantageous to us. So, we’ll certainly have that in consideration. But for those that are looking for a project right now, a good management team that has done it before, is a very important way to identify good opportunities in our space on this. Our group has successfully completed our business model once with Antares, which resulted in a very nice return for our shareholders. We learned a lot in that process and we believe we’re on to a better project now and a chance to do that again. It does take some patience on these. So, we’ll be building value. We’re the type of investment opportunity where you accumulate when prices are weak like they are right now. And you sit on that and wait for us to have that monetization event. A lot of values added very quickly as we approach that point in time when we can monetize the project.

Matthew Gordon: John, look I appreciate the catch up. Sounds like you’re sticking to the business model you know. You’re very clear. My interpretation is that, you know you’re not miners, you’re not pretending to be minors, not pretending to get into production like some management teams do, even though they’ve never done it before. You’re clear of what that point that you’re looking for is and how you’re going to get there. I guess what we will like to see is how you fund that and what the cost of that money is. As you say, it’s cheap to come in now, but not necessarily good for existing shareholders. With that dilution. But if it allows you to deliver an exit that like, I guess everyone’s going to be happy.

John Black: Well, it’s not like we’re rock-bottom prices by any means that right now at all. We’ve identified a project and that shows we have a market cap of about $120MIL right now, which shows that we’re on to a good project. It’s a good intermediate stage with us right now. And the real trick now is to make that next jump up. And we’ll do that by continuing to deliver the drill results we’ve been doing right now. Should that increase in resource, a critical stage to watch for us is that we anticipate we’ll have the permits that let us make that next jump to the north. And by moving to the north, we’re have the opportunity to increase the size of the resource that we’re on. But we also anticipate that the quality of the resource is greater to the north. As we move to the north, we’re moving into an area, the project that has cleaner metallurgy with it and is associated with better quality ore, so we think that that’s a critical stage for us and that’s a great opportunity for people to get into the company before we make that jump to the north. Once we’re drilling to the north, if we don’t deliver the results, we anticipate that we’ll see from there, that’s the type of point when we’ll see not just a jump, but a sustained jump in the value of the project.

Matthew Gordon: It’s a bit early, but we’re coming up to tax loss season in Canada. That’s always a tough one for juniors. Is that going to affect your decision making as to the timing of raising money?

John Black: Tax loss is kind of a funny one. It’s always hard to predict. I mean, we are coming up to that time of the year when that’s mentioned a lot on this. Keep in mind, many investors are not just in our sector, they’re in other sectors as well where they may have a lot of tax benefits on this. So, it’s kind of hard to tell. Investors have their reasons to be selling. If there are those that want to sell for very good reasons right now. That just creates an opportunity for other people. So, I view the end of the year this way as a great time to look for opportunities for good prices in solid projects with good management teams and to position yourself well for those, in particularly in the copper space. We will see a point in the not too distant future when we see a price increase and any company on a very good project right then is likely to see a substantial increase in price. So. it’s a great time to patiently position yourself for one or two years down the road.

Matthew Gordon. Beautiful. Thanks for the summary, John. Appreciate your time. Stay in touch and let us know how things are getting on.


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

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A map of Regulus Resources' assets including the Antakori Project.

Aldebaran Resources – Copper Gold bought cheap with Regional Scale (Transcript)

A wide photo of the Altar copper-gold project in San Juan Province, Argentina.

Interview with John Black, CEO of Aldebaran Resources (TSX-V: ALDE).

The third company from Regulus Resources’ management team, Aldebaran Resources is an “exciting” copper-gold play based in San Juan Province, Argentina.

Their flagship project, Altar, is a large copper-cold site obtained for a discounted value from a different mining company. Aldebaran, in conjunction with precious metals mining company, Sibanye Stilwater, are currently in the process of re-evaluating the project. Drilling began in January 2019, but time must be taken for exploration and the conduction of a logging program.

While the well-established track records of the Regulus Management team will instill confidence in many a prospective investor, the financials are slightly concerning. Share price has been as high as 90, but this year it’s plummeted down to 35. The company is also sitting on significantly less cash than it was in February, which begs the question: if the value of shares has gone down, how has Regulus used its cash reserves to add value?

Another concern will be the priorities of the management team. With so much already on their plates with Regulus, is Aldebaran a fledgling project that will find itself neglected? John Black offers some reassurance; a drill program on another Aldebaran project has begun in Aguas Calientes, and the primary asset, Altar, demonstrates immense potential, with over 2.5 billion tonnes of low-grade copper-gold mineralisation, and the promise of significant zones with a much higher grade.

The Route 1 group are significant shareholders with nearly 50% ownership of Aldebaran. This can provide long-term stability but for retail investors, there will be concerns regarding such high ownership levels from a single group. Will Route 1’s priorities align with the remainder of Aldebaran’s shareholders?

What did you make of John Black? Is Aldebaran Resources a promising prospect, or is it more of a pipe dream? Comment below.

Interview highlights:

  • Company Overview
  • Company Financials and the Share Price Drop of 2/3: What Happened?
  • Getting the Share Price Up: Will it be Possible?
  • Challenges and Opportunities for Raising Money
  • History of Aldebaran and its Potential

Click here to watch the full interview.


Matthew Gordon: We recently spoke about Regulus. Want to talk about the spin out which is Aldebaran. Could you give a one-minute summary for people new to this story, please?

John Black: Aldebaran is the third company from our same management team. Our first company, Antares Minerals, was sold to First Quantum in 2010 for about $650MIL. From that, we formed Regulus, which has the exciting Anta Kori Copper Gold project in northern Peru. And then we recently identified the opportunity for another exciting copper gold project called Altar, which is in San Juan Province in Argentina. And that forms the flagship project for Aldebaran. And it’s a large copper gold project. It’s one that was drilled out and previously purchased by a mining company. It was not a good fit with that company. And we identified an opportunity to pick it up for pennies on the dollar. We’ve captured that. We’re in the process right now of re-evaluating the project ourselves. And in the very near term, you’ll begin to see us demonstrating the full potential of this project.

Matthew Gordon: Beautiful. Thanks, John. Let’s start with the money side of things. So, you’re sitting on quite a bit of cash at the moment to develop the Aldebaran project, somewhere in the region of 11-12MIL bucks, is that right?

John Black: Oh, no. We’re actually at about $5MIL on the project right now.

Matthew Gordon: OK sorry. You’re right, that’s from February 2019. Good. Just sticking with the financials, share price, it’s been as high as 90, this year’s down at around 35 at the moment. What do you put that down to?

John Black: Well, when we captured this project, what we did is we had projects in Argentina as part of Regulus Resources that we had parked while we focused on the Anta Kori project. But we realized we had value in those. But we needed a little bit more to form a solid package of projects: a solid portfolio projects in Argentina. So, when we saw the opportunity to acquire Altar, we saw the opportunity to spin out and form a new company in Aldebaran. And we spun that out at a set price that was based on what our principal investors were willing to put in to get that setup at. And then the market settled that price down into where the market saw that, at that time. It’s a new project or a project that hasn’t been seen for some time on this. It’s in Argentina, which is a little bit less of a mining country. And so, we’ve seen a natural drift off on this as many of the investors that received Antares shares as spin offs, decided that they wanted to cash those shares out and put the money to work on projects that maybe had a more immediate opportunity to. And so, we’re now in the in the phase where we’re quietly putting together the Altar project and we’ll begin to reveal that value on the project over the course of the next year or two. And we’ve also just set up to begin to drill on our Aguas Caliente phase. So, a lot of the drift off has just been it’s a new company. There are projects that have not really seen much news on, as we’ve set it up in the years, it’s kind of in that initial stage where we’re consolidating and putting everything together, but we’re now in a position to begin to put out new drill results with the Aguas Caliente drilling. Aguas Caliente is a high-grade cup or high-grade gold silver opportunity that we see in Argentina, that drilling will start on in the next few weeks and we’ll soon be able to reveal how we see the Altar project and what the potential value is. And so, it’s a great time to get into a quiet story that’s just not really noticed by the market.

Matthew Gordon: Okay. I think as denoted by me getting the cash position wrong, your PowerPoint is from March 2019. You talked about starting to tell the story and I know you’ve got a PR presence, foreign personnel on board to start doing this. And you spent clearly 6-7MIL bucks since we last spoke. So, what are you going to be able to tell people about what’s happened to date?

John Black: We’ve recently just come out with the drill results from the field campaign earlier this year at the Altar project. And so, we drilled four long holes into the system, discovered a brand-new zone on the system, and have announced some very long consistently mineralized intervals. We’re talking about intervals of 800-1000-meter intervals of a +.5% copper equivalent with higher grade zones within those. So, that drilling was done to help us understand better the geometry of the mineralization in the system. We’re currently relogging the existing 115,000 meters of drilling that had been completed previously on the project, and with the new drilling and our re-evaluation of the old drilling on this, we’ll be able to present to the market over the next several months how we see this project really looking. It’s known as a very large but low-grade deposit and we view that that is what it is. But within that, there are distinctly higher-grade zones. And we want to reveal the importance, the economic importance of those higher-grade zones within the deposit. So, there’s a lot of geologic work we have to do in the background on this. We have put some of those results out quite recently. And they’re there for those that want to look for a good opportunity like this. But we’ll be able to show that in better ways in terms of how those higher-grade zones look in the in the course of the next few months.

Matthew Gordon: Right. So, it is interesting bit for me as a shareholder, I make money by share price going up. The share price has been hit, there’s been some resetting, I think you’ve called it, also maybe some market conditions, market nervousness around trade wars. And as we spoke with Regulus, you spent 6-7MILbucks within the last six months. You’ve no sense of whether you’ve got a dollar for dollar return there or not because the share price is down. What do you think you’re going to be able to do with the next 5MILbucks, which is going to drive to share price back up, or is that just not going to be possible for you?

John Black: We wouldn’t be spending this money if we didn’t think it was a good investment. We think of this money as our own money. We’re heavy investors. And keep in mind that as management we own nearly 18% of Aldebaran. And so, we think very carefully when we put this money in. Our business model is predicated on us identifying opportunities that we can capture at a bottom in the market, either due to lower prices in the market or in the case of Altar it was a project that was held by a company where it didn’t fit, and they were willing to part with that project. So, we captured this project for much less than it would cost to drill out, what’s known on it right now. And then it takes us many times a number of years for us to either drill the project out or in this case, to partially drill it out, but partially re-evaluate and identify clearly more economically viable portions of the project. So, this project is one of the larger copper resources that’s out there in the hands of a junior, potentially available for a major mining company to acquire. Major mining companies are not finding these projects themselves. And many of them are very optimistic that there will be a necessity for a lot more copper in the future as we see further electrification of vehicles and other things that drive copper price on this. And so there will be, I believe, in the next few years be an increased demand for these large copper projects. And we’ve put our hands on a great one right now. And a lot of times when we do that, when we initially acquire, this is not the first time we’ve done this. With the Hickory project we suffered through a couple of years when our market valuations were really low, even though geologically we knew we were on a great project. The same thing happened with Anta Kori and Regulus. And now we’re beginning to reveal the value on this one. I just view with Aldebaran right now, we’re in that early stage where we’ve put our hands on something at a great acquisition opportunity on this. We’re beginning to invest the money into it to reveal, but sometimes the full reveal of that value doesn’t come until just a little bit later on in the project. But there’s not an instant X number of dollars increase in price of our business. A lot of times you’re putting that money in. You’re working on showing the full potential of a project and then that potential gets revealed when we can show the project in its full potential on that. And that just takes us a little while to set up.

Matthew Gordon: Sure. So, you’ve got 5MIL bucks on the current run rate. That suggests another five months burn, right? Is that about right?

John Black: No, it’s very lumpy in this company right now because that’s very dependent on when we’re drilling on this. And so, what our plans are right now is, is that we will be drilling the Aguas Calientes and Aldebaran, we have the Altar project, which is our flagship project, the large copper gold play opportunity. But we also have a series of other projects at earlier stages and one in particular has caught our eye called Aguas Calientes. We have very encouraging high-grade copper or high-grade gold silver material on the surface and we’ll be drilling this for a high-grade gold silver epithermal vain opportunity in the course of the next few weeks. So that’s a relatively small drill program. We’ll spend about a $1MIL Canadian on that, which will result in the potential for a new discovery on this and results to come out soon on that. And then in the background, we’re putting everything together to be able to define what the next stage at Altar project is. Probably the first stage of that is to reveal the full potential of it. So, people can begin to see what that opportunity is. And that will determine how much drilling we’d need to do. We have a lot of drilling in Altar already. We have a lot of data there. So, it may be simply having us reveal what’s there by being able to better present in a different light the information that we already have.

Matthew Gordon: So, here’s the question. You’ve got 5MIL bucks left. You outlined some of the ways you can spend the money and I guess you’ll prioritize that in the way that your experience tells you to prioritize that. You expect some of those things to have an effect on share price. If they don’t, your market cap stays the way it is. You’re going to need to raise some capital. It’s going to cost you what it’s going to cost you. How are you going to approach that? I know you’re going to tell us story in the market. Really, really well. You’ve said you’re going to start telling the market really well. How do you approach the fund raise when you’ve done these things deliverables on your three projects and the market doesn’t appreciate it yet? They’re not listening to you. Just go ahead and raise small amounts or do you try and say I need to raise 12 months’ worth. What’s your thinking?

John Black: Well, our thinking really on this we’re just as I mentioned, we’re just kicking off a drill program in Aguas Calientes, so we’d like to see what those results are. They have the potential to dramatically change the situation on the project. We will be able to better reveal the full potential of the Altar project as we complete our relogging program and can present that in a little different light. I think what you’ll see us showing is the higher-grade portions of the deposit, which are still extremely large. The current resource is over 2.5BIL tonnes of low-grade copper gold mineralization. On this we view that within that 2.5BIL tonnes there are significant zones of much higher grade that form a deposit by themselves, if you will. And so, we’re in the process of being able to put that together to reveal that. When we show the results from the program at Aguas Calientes we will show our full thoughts on where we’re going with the Altar project. We believe that will warrant an adjustment in the share price on this, which would allow us to raise capital with less dilution. But the important thing is that we move projects forward on that. So, we do have the capability of raising capital somewhat independent of the share price on this. It’s just always best for ourselves as current shareholders and all of our other shareholders to do it at increasingly higher prices.

Matthew Gordon: What does that mean? What do you mean we can raise this independent of share price?

John Black: Well, we have some very supportive shareholders. This is a bit of a different structure to a company on this in that we have a group called Route 1 that’s been a strong backer for our team all the way back to the Antares days and they’re strong supporters for Regulus and they own nearly 50% of Aldebaran. Sibanye, the company that we acquired the project from has 20% of the project and his management, and we have 18. So, it’s fairly concentrated shareholders on this. And there’s alignment amongst the shareholders on this that the important thing is to move the project forward. Ideally, we’d love to do this. Our goal is to increase the value in the company, certainly by the end game, which we view as monetization and selling the projects to a mining company at the end of this. But we’re focused more on that end game than we are on day to day on this. But we do believe that the results from Aguas Calientes have the opportunity to bring us back on the map, if you will, on this. And we believe that when we’re in a position to reveal our full vision on what Altar is and what the full potential is, that that’s likely to result in an increase share price. But there are other factors that are beyond our control, like copper price or other things that could affect us as well. So, we have some time on this. And when we’re in a position where we don’t like our share price on this, the important thing is to roll out additional information, so people can understand better what we have and to be cautious. You don’t spend as much, you don’t raise as much on this when your lower share prices. But it’s important that you keep the company moving forward.

Matthew Gordon: But isn’t that kind of your problem. Based on that maths you’ve got 12% of free-floating shares, haven’t you? You’ve got 50, 20 plus 18. Liquidity’s the issue here, right?

John Black:  You’ll notice that many of the companies that do well, this is not terribly different than some structures of, say, some of the Lundeen companies and others where you have large concentrated holdings from groups that are very comfortable in the long term on this. It almost becomes a little bit more like a private company structure on this. And sometimes when you’re in a market bottom, that’s a little easier structure to have than when you have a lot of liquidity in a tough market. Liquidity is your friend when the market’s robust and going up, but your enemy when it’s going down on this. And so right now what we focus on is setting the project up, acquiring the project which we’ve done, and then setting it up and getting ready to begin to reveal that. And as we reveal that, and we raise additional capital, that’s where we anticipate we’d be bringing in new investors and increasing that liquidity. But the nice thing is it doesn’t take too much interest in us to move us pretty quickly right now, too, because it’s there not very many shares available. So, if we deliver the results that we believe these projects will deliver, a little bit of demand will have a sharp increase in our share price.

Matthew Gordon: Potentially. I think that’s a kind of fine balance. We’ve seen a few companies over this side of the pond who’ve had too much in the hands of one or two shareholders and it’s killed their share price, it had the opposite effect. It’s a balancing act. I appreciate that. But also, it gives me an insight into how you guys are thinking in terms of taking this forward. You know, you believe you’ve got the ability through your current shareholders to get you to a point where you’re comfortable to go out to market and it put some more shares in the market. Understood.

John Black: Keep in mind one thing on this, if we had a project that required a lot more drilling to reveal the full potential on it and a lot more investment on it, that would be one challenge. But here we acquired this project under very good terms, but it’s a project that actually has quite a lot of drilling to it. The Altar project was drilled out by a junior company like ourselves called Peregrine Metals and sold to the Stillwater Mining in 2011 for almost $500MIL U.S. cash at the time. It then stalled. The company that purchased it was not a good fit for the project and it disappeared off the map. So, we acquired it for much less than that. So, you know, right now, when you take a look at our market cap and the size company we have, we have the option to turn 80% of a project that at one point was valued in cash at over nearly $500MIL U.S. and when the copper market was robust. If we returned to that type of a copper market on this, we believe we can show that there’s more to this project than was even known then. And much of that we can do from simply relatively low-cost work to re-examine this and recast the information that’s there so people can better understand that this is not simply an enormous low-grade deposit, but there are distinctly economically more attractive higher-grade zones within it. That’s what we want to reveal to the market. That won’t cost us too much money to do that. That’s a lot of geologic work. We did spend some money this year for the drilling to gather information to better evaluate what we have. But we’re now in a position where we can reveal quite a bit of information about this project without a particularly large spend on it to go forward. And we believe with that information on the table, we’re likely to see a different valuation.

Matthew Gordon: So how much money has gone into this company in total then?

John Black: The way we structured this is as I mentioned at Aldebaran was a project that was acquired by Stillwater Mining for $487MIL in 2011. We acquired the option to pick up 80%. So, we had the option to earn 80% of the project for $15MIL U.S, which has been paid and for Sibanye, which was the new owner of the project after they acquired Stillwater, has 20% of Aldebaran as part of the process. And we need to spend $30MIL over the course of 5 years to acquire 60% and $25MIL additionally to go to 80% on the project. So, over the course of the next 8 years, we need to spend $55MIL total to acquire 80% of the project. We’re well ahead on this, we’ve just completed our first year on this and we’ve spent approximately 7 or $8MIL into that work commitment. So, we don’t have to work at that pace right now. We can a little slower as markets a little bit slower on this. But we anticipate we’ll spend that money to acquire the 60% interest within the next four years. So, we have we have time to do that. What we need to do now is to better demonstrate to the market what the potential of this is first. And then we anticipate over the course of the next few years, we’ll see, most likely, an increased interest in these type projects from major companies. And that will likely come as a predicted supply gap in copper emerges and we start to see copper prices move up. And so that will provide us a better environment to raise money at less dilutive costs.

Matthew Gordon: So, you don’t feel you’re under any pressure with regards to money as it stands because you can control the pace at which you move forward.

John Black: We can control the pace of it and we have good supporters on it and we’re on a great project with much more value than is currently revealed in our share price on this. But we don’t want to spend all of our effort just trying to get that up in the short term. We really want to set the fundamental situation so that the end game is there. We focus on that maximum value at the point that we would monetize this project by selling it to a major mining company.

Matthew Gordon: Okay. Look John, I think that’s a great reintroduction to what’s going on with Aldebaran. Fascinating. I think if people can pick shares up, might be worth having a look. Well, stay in touch. Let us know what’s going on. Sounds like a bit more drilling to happen as those results come out. Give us a call. Let us know how you’re getting on.

John Black: Yeah. Keep an eye on these Aguas Calientes. That’s a second project in there that has potential to emerge as something pretty exciting on this. And then the real fundamental part of the company to watch is how we reveal that value in Altar. And we’ve discussed a little bit on where the share price is right now. But in our previous two companies, we suffered through these same points where even though we knew we were on a great project, a lot of times takes a while for the market to see that. And the important thing is, is that we will be able to move the project forward. We will have access to the capital we need. We’re no risk of concerns that way.


Company page: https://www.aldebaranresources.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 wide photo of the Altar copper-gold project in San Juan Province, Argentina.

Hummingbird Resources – No Problem. It’s Mining. +110,000 ounces (Transcript)

A close up photo of a Hummingbird taking flight with green foliage in the background.

Interview with Dan Betts, Managing Director of gold producer, Hummingbird Resources (AIM:HUM).

An honest and candid conversation with Dan Betts about the highs and lows of mining gold in Africa.

They had a tricky 18 months but they overcame and found workarounds to be able to deliver +110,000oz. Challenges with water and a legal case a distraction. All resolved and they move on, aggressively. Hummingbird is producing more cash with improved margins and paying down debt. We like their prudent approach to mining and cash retention and their ability to solve problems when they arise. Allowing them to grow and deal with unforeseen issues. Gold grades are consistent. Q3/19 results are on schedule having played catch up for most of the year.

Is it trading at a discount to free cash flow multiples? What do you make of the way the dealt with investor concerns? Leave a comment below. We like the management team and is one we will follow with pleasure.

Interview highlights:

  • Overview of the Company
  • Dealing with Issues over the Last 18 Months
  • Production Numbers: What Have They Managed to Produce in Q3?
  • Growth of the Business: Any M&A in Sight? What is Their Strategy and Vision?
  • Share Price and Shareholders: What are the Expectations?
  • Divergent Strategies: What are Their Competitors Doing Differently to Hummingbird?
  • Dividends on the Horizon? What is the Company Worth?

Click here to watch the full interview.


Matthew Gordon: So, why don’t you kick off and give us a one-minute summary.

Dan Betts: So, Hummingbird is a gold producing company. We have a gold mine in Mali called Yanfolila that produces in the region of a 120,000oz of gold a year. We started as an explorer. We still have an expiration project in Liberia. We took that through development and we did M&A. We acquired the Yanfolila project. We financed it, built it. So, we’re slightly unusual in that regard in that we’ve been through the entire mining process, I suppose from grassroots exploration all the way through to today where we’re a producer.

We were just talking again before the cameras came on. You’re sort of 9th generation now, is that right?

Dan Betts: Yes. So not in Hummingbird’s. So, to be clear, if you go back. Yeah. Hummingbird’s been around a while, but not 9 generations.

Matthew Gordon: You were saying about some interesting ways people used to find gold in the streets.

Dan Betts: Yeah. Yeah. Under the Hatton Garden, in the sewers and gold washed down the tanks and all the rest of it. But, our family business is a gold refining business based in Birmingham. And yeah, my brother and I we are the ninth generation and it’s through that business that we had a network in the gold world and that hummingbird’s origin started, I suppose.

Matthew Gordon: So now you’re in Africa with Hummingbird. I’ve worked in Africa for quite a few years. It’s a great place to do business that can occasionally be tough.

Dan Betts: I think always tough but it’s exciting.

Matthew Gordon: You’ve had a sort of interesting last 18 months and we’ve knocked some of those things on the head and talked about those because you are producing plus 100,000oz so something’s going right but let’s deal with some of those small fires and how to deal with them on the way.

Dan Betts: You’re probably only as good as the challenges you overcome. And I remember my first chairman was a guy called Ian Cockerill who was the CFO of Goldfields. And when we were discovering gold in Liberia and then we listed the company and everything was seamless and going smoothly. He said, you have no idea how lucky you are. He said mining is a difficult business. And he was right. I have those words ringing in my ears now, so the last 18 months have been challenging. I mean, we built Yanfolila on time, on budget. We wrapped it up and everything was going great guns. And then we had a few issues, few operational issues. Difficult to summarize, really. I mean, a number of different issues hit the performance and it’s been really 12 months of working through those, whether they are geotechnical issues with the pits and the wall stability, which is well documented. Recovery, dilution, mining issues, performance, plant, just building a business, building the team. And you know, we’re here today and we are producing on budget on our nameplate capacity to the costs we originally thought. And we’ve overcome a number of challenges, which I suppose are inevitable as a new producer with our experience, you know. Looking back, I suppose we could have anticipated a few of those challenges better. But, you know, I think, touchwood, we’ve come through them.

Matthew Gordon: I only ask because it’s important for people to understand investors, to understand the complexities of mining. I repeatedly say mining is tough and you need to find workarounds and get to the end point because people only care about the end point. So, you’ve had flooding to deal with, so you’ve had to reinforce the pit walls, rules etc. and that’s impacted on production slightly?

Dan Betts: Well, so if you go back to Q4 last year, it impacted production significantly. Q4 last year, in Q1 this year, we were way down on production. And obviously that impacts your costs and the AISC was way up. We have to do a considerable amount of extra waste moving on the pushbacks of the walls to accommodate this wall stability issues. And as you also say, de-watering extra pumps, extra resources into the de-watering of the pit so that it wouldn’t happen again. But you know, today it’s middle of October and we’re at the end of the subsequent rainy season. And, you know, Q3’s results, which are just out, are good through the wettest quarter. So, I think we’ve learned a lot from the trials of last year.

Matthew Gordon: Yeah and then of course the Taurus situation – now resolved – what happened there?

Dan Betts: We’ve settled with Taurus. We’ve taken a very practical approach to the claim they brought against us. I think it shows that we’re able to be practical, non-emotional, and I think that’s in the past. I think best we move on from that one.

Matthew Gordon: Ok that’s fine. I’m just trying to show people that, you know, the business of mining is a complex business. And things come along, you know, curveballs come along and you have to deal with them and move on so I appreciate you dealing with that.

Dan Betts: That’s absolutely right. They do.

Matthew Gordon: Let’s talk about the business. You’re forecast this year to produce what? How much?

Dan Betts: So, our guidance is 110-125,000oz for the year. It is meaningful. And we were well behind the curve ball after Q1. So, we are maintaining that guidance. So, yeah, I mean, I can talk to Q3’s numbers which are just out where we’ve just over 30,000oz for the quarter and the AISC for the quarter’s 850 an ounce so a great result.

Matthew Gordon. That’s a great result. Significantly down from where you’ve been, obviously.

Dan Betts: That’s right. So, if you look at the last four quarters, we’ve had reducing costs and increasing production quarter on quarter as we’ve come to terms with and overcome the challenges that we’ve already talked about. And that means we’re deleveraging fast. You know, we’re paying down the Coris debt quickly.

Matthew Gordon: Where are you with that?

Dan Betts: So, I think total gross debt at the moment in the company is about 49MIL at the end of Q3. So, by the end of the year, it’ll be more like 32 when we’ve paid down all the other loans and things in the business say 32MIL gross debt at the end of this year, we’ll be in good shape.

Matthew Gordon: Well, for sure. And obviously with the gold price, all the producers have a nice little bump going into August which is good news for you guys. So, you’re producing cash. You’ve got to get that balance between paying back at a rate which you are obliged to and also keeping enough money in the business to grow.

Dan Betts: Grow and to accommodate unforeseen issues. I mean, to be prudent, but yeah, that’s right.

Matthew Gordon: Okay that’s exactly what I’m talking about, it’s having that capacity to deal with these thing’s as they come along. So, let’s talk about, if you don’t mind, talk a bit about technical about Q3. Have you seen grades continue as you expected? Or are you having to get more out of the ground to get those ounces?

Dan Betts: The grades in Q3 have held up as per the plan. And so, to be honest, Q3 has performed as per our DFS and our studies. I mean, it’s performed how we expected it to perform. So I’d say we’ve got back to where we expect to be.

Matthew Gordon: Right. Okay. So again, I’m just trying to understand where the companies going to. So, you’re producing cash. The margins are increasing because your AISC is down. Obviously gold price is up. You are continuing to hit targets. What are you going to be doing with all of this cash that’s in debt to pay down? But what are you going to do in terms of the growth component to this? Is there a growth component to this?

Dan Betts: Well, initially, the priority is to, you know, one quarter is not enough to do Q4 and Q1 and to build the reputation of a proper mining company that can deliver. So that’s our first priority. And I think, you know, a lot of people say, oh, hummingbird, it’s trading at a very a discount to free cash flow multiples and all the rest of it. But I think it’s fair enough for people to be a bit cynical, having travelled the last 12 months with us, so the onus is on us to deliver and that means being reliable and showing performance for the next couple of quarters, which is the key. I don’t think, you know, people get carried away with all the when are you paying a dividend, all the rest of it. Let’s just get the job done. What’s the saying one sparrow doesn’t make one summer and all the rest of it. That said, you know, Yanfolila has a relatively short mine life. It has resources outside of the mine plan. And extending that mine life and investing in exploration and underground studies and other deposits that we bring into the plant are a focus and an increasing focus. So, I would say in my mind that, you know, if I’m looking at risk, number one risk is you’ve got to deliver to plan because we failed to do that over the last 12 months. We’re now doing it. We’ve got to show that we’re reliable and trustworthy, but, you know, pretty close second is to extend the mine life and show the future of the project. And, you know, ultimately further than that show, that Hummingbird has more to offer than just Yanfolila, you know? So much of my time and effort has been about building a business and a team and skills and people and a board and relationships all around the world. And how do we leverage off that to take it forward and build real value? And ultimately, Yanfolila is a relatively small, relatively complex mine. That’s what it is. You can’t change what nature put there. So, if that’s our school and we turn out to account, we proved to be a reliable, efficient mining company, for me that’s tremendously exciting. I mean, think what we can do with that and what we can build and go forward. That slightly more nebulous, right. So intangible and in the future. And let’s just stick to our knitting and get Q4 on the money. Q1 on the money and build out the tangible future.

Matthew Gordon: I think that’s right. You know, like I say you’ve hit a few bumps along the road in the last 12-18 months. But you dealt with them and you’re hitting numbers and the market’s gone with you in terms of price of gold etc. And you are doing all the right things in terms of driving to AISC down, so you’ve got a bunch of skill sets in house. But you do have this short life of mine relatively, and you do need to do things you just talked about in terms of showing growth potential alongside delivering over the next 2-3 quarters for the marketplace because your share price has been relatively erratic, I suspect because of the reasons you’ve always said. What are the existing shareholders saying to you in terms of… are they saying let’s just the steady the ship and we’re still here? Or are they making demands?

Dan Betts: I don’t think there’s a consistent answer to that. I mean, every shareholder has a different view and a different conversation. But I mean, generally speaking, the view is, you know, be sensible. Pay down your debt, manage your cash flows, deliver to your performance and the value will come through. And I mean, I agree with that. And, you know, for me, it’s always been a game of you got to keep your options open. Things change. The game changes, the markets change, gold price will change. And if you’re absolutely dogmatic about this is what our 10-year plan is going to be and we can execute it. It’s not gonna work. I mean, we’d have gone bust carrying a huge project in Liberia and not being able to fund it.

Matthew Gordon: Let’s skip onto Liberia momentarily. The last time I saw you, many years ago, Liberia was something we were discussing actually back then. So, what’s happened? What are you doing with that? Is there any value there?

Dan Betts: There’s tremendous value there but not in our share price. I mean, you know, we own a 4.2MILoz gold deposit in Liberia, which we hardly touched the sides of. I mean, if you actually, you know, knowing what we know now, if you go back to how little we knew, then we found 4.2MILoz of gold on a discovery cost of $7 an ounce, never hitting a blank drill hole. I mean, it is actually an extraordinary success. And then the story kind of took over, the market took over and the market tanked. We couldn’t fund it. It needed to be big, the CapEx number, all these issues.

Matthew Gordon: Wasn’t Ebola somewhere in there?

Dan Betts: Ebola, everything. And then we compounded all of that by doing an M&A deal, funding a project in Mali and building it. And actually, for the last four years, Liberia’s really been on care and maintenance. But we still own it. Gold’s now 1500. There’s a lot more interest in deposits like this. I mean, if you look at Cardinal Resources or someone like that, there’s a lot of similarities, right? Except the only thing that’s a big difference is ours is worth zero. So, in terms of optionality and ways to create value, I’d say it’s a massive optionality for Hummingbird.

Matthew Gordon: Well, okay. Let’s talk strategy. So, you gave an example. You’ve got Cardinal building up the ounces next door in Ghana, reasonably close by. You’ve got Rocks Gold, who’ve taken a different strategy, they’ve said no we’re got a short-life mine we’re going straight into production, generate some cash and buy another asset which they’ve kind of done, right? So, two different strategies going on there. So, what are you guys thinking of doing? I mean, you’ve hotfooted from a management meeting so you’ve discussed various things. Is this something that’s on the table at the moment or is it still in care and maintenance mentally?

Dan Betts: No. So, I think the environment is right to take Liberia forward in terms of strategically and this might sound like a bit of a non-specific answer, but what I want is create value, create value for Hummingbird shareholders. For the market to go, oh, my God, we’ve forgotten about this. There’s value there. Now, does that mean I need to build it? I’m not sure that will create that much value because people will see it as a challenge for Hummingbird, another small company, dilution, where’s the CapEx going to come from? If I could attract partners, investors in a way that suddenly Liberia was being re-engineered or the 4.2 was becoming 5 or 6MILoz with a redo in a feasibility study because power costs could have changed and different ways of looking at that. I think there’s tremendous potential with a fresh pair of eyes. Four years later to come back and go, wow, this is like the most exciting exploration province in West Africa, which I believe. Let’s take another look at this. And if I could do it in a way that was non-dilutive to Hummingbird shareholders with a partner who had the credibility, skills to do that.

Matthew Gordon: I mean, 4.2MILoz here, Cardinal next door coming up with between 5 or 7oz, I can’t quite remember. You know, whatever their market cap is, 130 million bucks, something like that. The Berimium Green Stone, it’s prolific. There’s alot of companies there. What type of company or strategic partner, someone who is going to come with money and skills are you looking at? Have you spoken to anyone? Or is it just a consideration at the moment?

Dan Betts: Yeah, it’s a consideration. I mean, you know, I don’t have any scoop to disclose for the purpose of the interview. But I mean, I’m talking to lots of people. And that’s the answer. And they’re varied and diverse. And they’re not all just, you know, capital markets listed in Toronto or London or Australia. It’s a more diverse world than the investment community realizes I think.

Matthew Gordon: For sure. I always ask the management team about the thinking, what’s going on ahead? What’s the strategy? What’s the business plan? How are they going to deliver it? Who’s going to deliver it? So, you talk about it may be zero value attributed to the Liberian asset at the moment and you I’m going to try and create value there, we’re thinking about how we go about doing that. So, I’m just interested in that process and timeline. And how much money do you throw at it? How much internal resource do you throw at that before you can bring strategic on board?

Dan Betts: You know, you need to play the cards as they’re dealt. And it depends on the conversation you have with a potential partner and how they want to structure the deal and whether it looks attractive. But in terms of strategy for taking Hummingbird forward, I think our focus is more on free cash margin, trying to focus on a lower-cost producer of a more manageable size. In places where we think we have a competitive advantage. Now we have a competitive advantage in Liberia. I mean, yes, we’ve been there for over a decade and we know everyone. But the rest of it doesn’t really fit with that strategy. It’s gonna be a big mine. It might fit better with somebody else’s strategy, but we can help them in a way that nobody else can. So, in terms of being involved in the journey, taking up the value curve, fully involved in that. In terms of actually building the project, I’m miles away from that if you see what I mean.

Matthew Gordon: Yeah, there’s a lot on the table, it’s whether the stars align, and everything comes together, you’ve got the optionality because it’s costing you time or money at the moment and quite a lot of cash elsewhere. So, let’s come back to Mali. What else are you sitting on except for the mine itself? You’ve got a lot of greenfield, brownfield exploration going on elsewhere and so on. What else is happening?

Dan Betts: Well in the country, that’s a big question. But I mean, if you go to our mining permit, there’s a number of deposits ranging from resources that we are doing studies on for underground or extending open pits or bringing in other open pits into the mine plan. But also, there are targets to find new resources. We’ve also got the largest shareholding in an expiration company called Core Gold, which was created by us with it as a joint venture with some colleagues of ours. And, you know, we’ll keep a watching brief on that and see how that develops, because that could also provide potential feed or to the Yanfolila project and also provide extending the mine life. So that’s our thinking behind that.

Matthew Gordon: So, how much of that do you hold?

Dan Betts: Give or take 20%.

Matthew Gordon: So that’s exploration optionality for you. Have you got any agreements with them or is it just equity position?

Dan Betts: It’s just an equity position.

Matthew Gordon: Okay, so back on your own assets, things that are in your control. I get that we’re focused on generating cash and free cash flow. But on the growth component of the story, if you can just tell us a bit of what’s happening.

Dan Betts: Sorry to be specific. Do you mean on our license or do you mean general M&A heads up what’s going on in the country?

Matthew Gordon: On your license, if there is any, it’d be great to talk about that.

Dan Betts: Yeah, well, there isn’t.

Matthew Gordon: What does the board charge the management team with doing on that front?

Dan Betts: Right. So really if you go back to, we have to go back 12 months. We have to go to when we had issue at the pit and we basically closed ranks. Did this pushback, focused on cashflow and survival and performance. We cut our expirations spend last year to accommodate that. And really for the first half of this year, it was all about working through the challenges. So, it’s really only now this quarter that we can lift our head up again and focus on the wider picture and building the business. But I mean, a lot of work has been going on in terms of conceptual studies for potential underground extensions to the pits, to the Resource, Commander East Resource and Commander West Resource and also other identified resources such as East and West that we could look to bring ore into the plant. And what would be good about that is that oxide resources. So, they’d complement the fresh rock as we get deeper in the pits. So that’s what we’re focusing on.

Matthew Gordon: Ok so, you generated some cash. And I know you’re paying off a bit of debt, you’ll have a lot less in a year which is great. How do you use that? Do you fall into the kind of producer trap of basically any money you generate has to go to trying to generate more ounces in the ground? Or would you leverage yourself?  I know you’ve got a bit of debt, but can you get more in there, debt that is, so that it’s non dilutionary?

Dan Betts: It’s a catch 22 because people will only lend you more debt if you’ve got a longer mine life to borrow against.

Matthew Gordon: You talk about dividends. You’re not paying dividends now, it’d be crazy to, but at some point shareholders are looking at that.

Dan Betts: I’d love to be a dividend paying gold miner, but you don’t want to do it at the expense of the future of the company. So, it’s a balance. I mean, what I always said at the start and I’d like to get back to that is, you know, be disciplined, don’t spend more than 15% of your free cash flow on exploration. And with that 50% of free cash flow, replace and increase your reserve base. That’s okay. And it just kind of feels right based on experience, I guess. But, that’s kind of where we’re at.

Matthew Gordon: Understood. That’s an interesting number. No ones ever put a number on…

Dan Betts: I think trying to build a discipline into that sort of thing is important. And, you know, we haven’t been able to because we’ve been fighting different issues. But, you know, we need to now apply that discipline from here going forward I think and in terms of dividends, I mean, it’s a question that goes round, round, round and again, it’s a catch 22 because mining is extremely dynamic. The markets are extremely volatile and you commit to something and you’re small single asset project like ours, something goes wrong, then you’re not going to be able to repeat it and then you’re gonna be exponentially punished because you didn’t maintain your dividend or improve it. That said, it would be great to return excess cash to shareholders. I mean, what else are you going to do with it unless you find an outstanding project?

Matthew Gordon: It’s always nice when the management team say it’s nice to do it, we want to do it. How do you plan to put yourself in a position where you’re able to do that? Clearly, the current market, as in the last quarter and hopefully going forward with the price of gold, you can.

Dan Betts: Well it might not last. But I think we want to build a gold business and I don’t have a roadmap for exactly what that will look like going forward 10 years. So, you want to maintain some optionality, but you want to build a reputation for being disciplined and prudent. So, for me, conceptually, if you get to a position where your net debt free, your cash and your gross debt meet zero, it would be nice to signal something to the market. Now, whether that’s a dividend or a special or a buyback or something, I’m unclear. And this isn’t happening right now, you know, but we need to start thinking about it as a board now. And next quarter and early next year, because hopefully it will happen quite soon.

Matthew Gordon: Well, the other bits are steady appreciation of the share price. Steady, not meteoric, not hockey stick. We all love that but that’s not realistic. So, you know, steady growth, there is liquidity in stocks. People can get in and out, and feel they’re made some money with you. Getting guidance from the company as to the things they’re putting in place to help accommodate that as best one can.

Dan Betts: I know that everybody that invests in Hummingbird, myself included heavily, is you see the share price, it’s there, it’s on a screen. This is what you’re worth. It’s not what you’re worth. It’s the price. You know, we’re back to that age old argument of price versus value. And the value of Hummingbird is massive. You know, the relationships, the people on the management team experience, the problems we’ve overcome, the experience, those are all intangible values. They’re not in the price. So, we have to leverage that value. And over time, it will come through in the price.

Matthew Gordon: Yeah. I mean, cold harsh view of this from a shareholder who’s bought in at one price and they’re sitting on 20, 30% lower than you are. Not saying yours are, but if they were you can sort of see why all of that doesn’t really matter. I think it’s a great story, I think you’ve dealt with some pretty tricky things and still continued to produce. I’m not down on the company, I’m just saying from your perspective, thinking of the shareholders, current and new to come in it’s given that guidance as to what the future looks like and you’ve done some of that today, but a bit more of the growth components to when and you’re at a point where you can do that, I don’t think you’re there yet.

Dan Betts: Yeah, but I mean, I take you back to when we listed Hummingbird and we raised some money specifically to explore, to take a small resource as large we could take it. We didn’t even have a target. And over the next three years, we found, formally announced, we were the most successful explore in West Africa and what happened to our share price? It went down 60%. So, even if you deliver on what you say, if you know the market, if you’re the wrong side of the market, you’re going to lose. So, the market wants one thing, whether it’s value or growth or discipline. And then lots of people chase that and they say, okay, this is what we’re going to be. And then the market changes. So, for me, I want to build financial discipline. I want to focus on free cash margins so we’re protected. I want to build a reputation as someone that can operate and deliver. And then let’s see where it takes us.

Matthew Gordon: I think it’s a great place to finish. That’s been a great summary. Thanks very much. Great to catch up again. I think that’s fascinating for people who are new to this story. I’m not sure who it’s new to because it’s around the world. It’s also quite a good explanation of what the next couple of quarters are going to look like if you continue to deliver those.


Company page: https://hummingbirdresources.co.uk/

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 close up photo of a Hummingbird taking flight with green foliage in the background.

Link Global Technologies – Low-cost Energy Solution for New Generation Data Centres (Transcript)

A photo of a blue sparkly bitcoin against the backdrop of black with dots of blue light.

Interview with Stephen Jenkins, President and CEO of Link Global Technologies.

Link Global Technologies build and manage semi-portable, self-contained power solutions (containers) that can be rapidly deployed in virtually any environment. They are a low-cost energy supplier to the data-mining/data-hosting space.

Link Global started as a crypto-mining company, but recognised the opportunity of a bigger play in 2 additional sections: providing mobile date centre solutions and developing IP around energy efficiency. They have just carried out an IPO of 5,000,000 common shares at a price of $0.30 per share for total gross proceeds of $1,500,000.

This is Jenkins’ first foray into the realm of public companies; all his previous experience came with private companies.

There are question marks as to whether Link Global can compete with its rivals, especially big hitters like Cisco with a market cap of $190.59B! Jenkins remains adamant that despite the massive difference in available capital, Link Global can compete in the big leagues.

What did you make of Stephen Jenkins? Are you crazy about crypto? Can Link Global prosper against the technological behemoths that surround it? Comment below.

Interview highlights:

  • Company Overview
  • Going Public and IPO Raise: What Will They Do With the Money? Who’s Supporting it?
  • What Are They Focusing On?
  • Crypto Currency Mining Origin Story: Why Did They Choose This Commodity, Who’s Involved in it and Why Stay With it?
  • Energy Supplier: How Will They Compete in the Market? Who’s Got the Right Experience to Assure Success?
  • What are New Shareholders Buying Into?
  • Peers and Competition: Why Will This Junior Survive?

Click here to watch the interview.


Matthew Gordon: I’m interested in your strategy and how you’re going to move forward. I’d love you to kind of tell our folks, our followers, subscribers, a little bit about what you’re planning to do.

Stephen Jenkins: Sure. So Link Global Technology started primarily as a crypto mining company. Got in on the craze, located some machines down in low cost power, Oregon, and has been building a business based on crypto mining. But we quickly recognize the opportunities, I think in a much bigger place. So, that is providing the infrastructure for not just crypto mining, but also data centres in general. So, we’ve really launched what we think are three pretty exciting branches to our business. Those being the underlying revenue from crypto mining. Number two is providing mobile data centre solutions for all types of data centres. And number three, is developing some IP around energy efficiency.

Matthew Gordon: Kind of interesting. You’re a relatively small company. You know, the IPO, you going to raise some money on that. I think you’re issuing like 5MILshares. What sort of price you thinking?

Stephen Jenkins: 5MIL shares at 30 cents.

Matthew Gordon: 30 cents. With this IPO, you’re raising some money. What are you gonna do with it?

Stephen Jenkins: So, what we’re doing with it is we’re actually just building more. We’re basically building out more places to put in machines, but also really to build some more of the mobile units. And eventually we’ll use that. We’re partnering with a few people. We already have a partnership in Canada right now with Astra and we’re co-locating with them. We’ll build out that data centre for them. So, we’ve got things, I think, in the works. Obviously, we we’ve been in the IPO process for a long time. After the IPO happens, we can you know, really get busy with our business, put it that way.

Matthew Gordon: Get by focused on the business of doing business.

Stephen Jenkins: Yeah. It’s a long process.

Matthew Gordon: It really is.

Stephen Jenkins: And, you know, it again, goes to show you that the maturity of the crypto or immaturity of the crypto market. Anything could happen in the crypto market. We had exchanges fall apart. We had a bunch of other things happen. So, the commission came to us and said, well, how are you going to deal with it? Quite rightfully so. But what that did is it dragged on an IPO process for much longer than we were hoping. But at the second time, it made us look at our own business to see is this where we really want to be? And I still think we have a good underlying opportunity in that crypto space with all these other verticals.

Matthew Gordon: So, you’ve got a busy few days in front of you. You’re going public 14th, 15th?

Stephen Jenkins: November 15th. We should be trading the 14th or the 15th. Yeah. It’s been a fairly busy time.

Matthew Gordon: Exciting, exciting times. Is this your first public company?

Stephen Jenkins: Yeah. So, I’ve always been focused on private companies and this is my first foray into the public side. It’s definitely respecting that there is the market side, but respecting that, you know, everybody that buys into this company buys into any company, whether it’s private or public, we have to be able show people that we’re working for them.

Matthew Gordon: For sure. For sure. Okay. Well, you mentioned Lee Gable in there, well known. Who else? Who are the other names involved in supporting this IPO?

Stephen Jenkins: So really, they’re the main body underwriting this. And we’ve really stuck with them and we haven’t had to go out to find. We’ve had a lot of interest and much credit to them as well for raising awareness about what we’re doing. And really right now where we’re staying very tight. We like that it’s tight. We could have raised more money, but we want to stay focused.

Matthew Gordon: Yeah. Well, I agree with that. I think that’s smart and unusual for the Canadian market. You’re not raising a whole stock of money. But you’ve got already three branches to it. And again, when we sort of analyse companies and look at companies, we want to understand what they’re trying to be when they grow up, as it were. So, you started this crypto, you’ve kind of got the energy component to this, which I think is quite exciting. And then you’ve also, of course, obviously got the container technology as well. What’s the focus?

Stephen Jenkins: Yeah. Great question. So, what we’re using the crypto mining for is really that’s our what I would call our endemic cash flow at this time. So, we’ve managed to cover our overheads and get through a long IPO process with the exchange by having a Bitcoin mining ongoing. But I would say that in in the larger play is that it’s providing infrastructure for data centres in general. That means, you know, IP around energy efficiency is number one for sure. And using data, integrating it into mobile data centres.

Matthew Gordon: Right. And so why have you morphed like that, because obviously crypto has been fairly erratic, I think is be fair to say in terms of the price of Bitcoin etc. as people get excited and then it falls off again and it comes back up. So, what was your origin story with regards to crypto? Why did you kick off in that space?

Stephen Jenkins: So, we looked at crypto as a very interesting part and potentially some substantial blue sky on the revenue side. But watching and being involved in it day to day realized it’s a highly volatile, highly unpredictable market. We’ve got things coming up next May. So, we want to provide for people. One is this blue-sky opportunity with what could have happened with crypto. But two, is some revenue knowledge and some consistency in the business in terms of growth. So, providing infrastructure is always a good way to do that.

Matthew Gordon: Right. I’d agree with that. I wonder why keep the crypto bid at all if it’s that erratic. Why not focus on what seems to be quite a big demand area, which is energy and technology run energy supply.

Stephen Jenkins: That’s a great question, Matthew. We’re actually quite good and quite efficient at crypto mining. We have a very knowledgeable team behind that. We don’t do anything too complicated. We mined Bitcoin. That’s it, bitcoin core, so that’s all we do. We can turn that to Fiat. So, we use that as really as we say, as our cash flow. But we also we’re also using that to learn about the infrastructure that we’re building. So, we use that to demonstrate to people that we actually know what we’re doing ourselves as well, so we can lower our base costs by our own energy efficiency innovation.

Matthew Gordon: Okay. I can understand that. You’ve kind of got a working model which I guess you can test yourselves. And I guess it’s something you’d hope that you’ve come less dependent on that revenue stream. So how many machines have you got actually deployed at the moment?

Stephen Jenkins: Yeah. So, we have 1400 machines working now. What we’ll be doing and as profiled in our in our use of proceeds, we’ll be upgrading some of those machines in the short term. But again, I think, you know, watching how fast innovation is occurring in this space, it’s absolutely incredible. So, these machines are really only good at the outside for two years. So, unless you’re paying them back and making them, you know, cash positive within 18 months, you’re really fallen behind the curve. So, we’ll watch that closely and we want to be very conscious of our capital expenditures in that area. We’ll get to mine a little bit. And I think that really helps on a lot of cases. It’s still good cash flow today.

Matthew Gordon: Steve, if you don’t mind, tell me a little bit about some of the names that… You were kind enough to send the document over and some names on there. Michael Vogel, who’s well-known in the crypto space. I mean, how did you come across him? Why is he working with you?

Stephen Jenkins: So, Michael, he developed a company called Net Coins, which was really a good on ramp off ramp for Fiat currency. We came across Michael because we’re actually using a service to provide us with the Fiat, so on ramp, off ramp from bitcoin to cash. And we started discussing, Michael saw what we’re doing, got quite excited about it. He’s built, you know, and he really understands the crypto space. So, he’s been very valuable to us in terms of, you know, looking at our business and helping us decide if we’re on the right course with respect to crypto.

Stephen Jenkins: Great question. Jeff is a electrical engineer, 35 years’ experience. He’s well versed in automation. So, he’s done a lot of work within Canada’s space power. He’s done a lot of work within automation for skids and containers. And he’s really what we look at as our expert on the electrical side. Ed Smith is a well-known engineer, Phoenix Energy. He helps us with the heating and cooling side of stuff. So, they come together and really my focus is on the energy, renewable energy, but also taking the technical garb and putting it in English for people. So, I’m a bridge between the technical side and what I think are the retail people that maybe don’t understand all the technicalities of it. It’s a good team.

Matthew Gordon: Yeah. And then there’s have a guy in her called Feng Tao, quite successful Chinese businessman. How has he become involved with you? What’s his role here?

Stephen Jenkins: Lee Gable’s is the underwriting and financier for the project. Tao is very well known in China for being successful in terms of business. And he is the largest shareholder in the company. He has offered some incredible insights into the crypto market. Chinese are obviously very, very big players in the crypto space. So, he’s provided us with really great contacts and I think he provides that high level vision of what can be in that space and understands business very well.

Matthew Gordon: So, is that it or is there a kind of link to China in terms of the production and manufacture of some of your products?

Stephen Jenkins: Yeah. So, some things maybe that are early stage, but there’s no question where when we’re bringing over hardware, anything to do with crypto, all the hardware is still coming from mainland China or from Hong Kong. So yeah, we’ve got to have those contacts and we’ve got some interesting ideas about things that can be done and certainly he does as well. But yeah, it’s a critical connection for sure.

Matthew Gordon: Just staying on him, he’s your largest shareholder. How much does he hold?

Stephen Jenkins: He’s under 10%.

Matthew Gordon: OK. And has he introduced other money from China, or was that the idea?

Stephen Jenkins: Well, there was no question that, you know, they have a discussion there about to what’s going on in North America. There’s obviously an interest to grow the business to North America. So, he’s been incredibly helpful with respect to introductions and that kind of stuff. So, we have growing relationships, for sure.

Matthew Gordon: Right. OK. Let’s come back to the energy component, because again, I see what’s going on out there in the marketplace. You got players like Amazon and Google and Facebook. They’re building these huge data centres. You’ve got a lot of second three, second tier, third tier companies out there as well with their kind of respective technologies. Where do you hope to sit in all of this? I mean, how do you compete with those second, third tier companies?

Stephen Jenkins: The bottom line is that the demand for something like Amazon Web Services is overwhelming. Where we are in Oregon right now, there’s 14 data centres just for Amazon. They’re building another 16. And they’re also learning that, you know, that the demand for products and innovation in this space is huge. So, we’ve had early discussions with a number of players in the market. And we know that this will provide us a really enormous step forward, I think, in terms of our own business. So, we’ll stay focused in that area in Oregon, because that’s really where you’re seeing lowest cost power and the biggest development of data centres right now.

Matthew Gordon: OK. So, I named a few big names there. And I appreciate you can’t say too much about names, a few big names operating in that space around there. Have you got relationships with these people? Are you in conversations with them? What is it that you’re actually talking to them about? Are you going to be a supplier to them or what’s the relationship look like?

Stephen Jenkins: Well, it depends on what we can provide for them. So, we’re fairly motivated, I think, on the energy innovation side. And providing turnkey mobile data centres that integrate our own IP in there. So, what we’ll do with them is and what we’ve been doing is just really having early stage discussions about what they want, understanding what their needs are. So, we make sure that our focus is to fulfil their needs. Right. And just to give you an example, one data centre for Amazon is using $1.6MIL a month in power. 200,000 gallons per minute in water. So, that’s all money they’re spending out. So, whatever we can do for them, let’s say we can provide 20/30% energy savings. That’s a massive amount of number or what could be 30 data centres. So, yeah, of course, they’re interested.

Matthew Gordon: Yeah, they would be. And is that the type of products and intellectual property which you are developing currently? Because you talked earlier, you’ve got a bunch of crypto guys on the team, which is great. But around energy, who on the team has got that kind of background build to bring this on board?

Stephen Jenkins: So, the team we have electrical engineers, 35 years’ experience in automation and in containerized solutions, skid solutions so that they’re semi mobile solutions. So, bringing together people with understanding of how data centres operate, how computers operate and how power operates is really what our focus is and that’s how we’ve got forward on IP and innovation in energy efficiency. So, if you look, there’s been a lot of exploration today on DC data centres. So, we know that, you know, between alternating current and direct current, we know there’s real great gains to be had on DC data centres.

Matthew Gordon: Right. I mean, it kind of fascinates me how these big companies make investment decisions, right? They’re making a lot of money. Reliability, it’s got to be more important to them than energy saving, surely, isn’t it?

Stephen Jenkins: Oh, for sure. But if you want if you look at, say, one of the Amazon data centres as a good example, they’re backing up that entire data centre with Diesel Jensen. So, they’re using generators that are diesel powered. They’re conscious of the marketplace as well. And, you know, social impacts and perspectives and perceptions on green power. So, they didn’t want to have these massive diesel generators hanging out of all their data centres. What we can provide, and one of my focuses is renewable energy. So, in somewhere like Oregon, you’ve got massive wind resources, you have massive solar resources, but you don’t necessarily have a way to put those into the data centre in a coherent fashion. What battery storage does is which is one of the other things we’re playing with right now. It provides this amazing opportunity to… Doesn’t matter what type of energy you provide or what kind of generation you’re getting. They will put them in batteries and distribute that when needed. You can also use these solutions for managing power on a grid scale. All of the major utilities want to be able to manage power at a grid scale. So, if you’re relevant enough in the marketplace, you have enough power draw, they can use you to balance an entire group. There’s a lot of opportunities that are coming that we have our fingers in, but we want to stay focused as well on creating value. Step by step for our shareholders. So, I think there’s really this to balance one of, you know, letting all the minds get crazy and think about what could be, but also how to get there is really important, step by step.

Matthew Gordon: So, you’re private at the moment but you’re doing the Canadian thing, going public at a relatively early stage. What is it that you’re selling to the public? What are they buying into at the moment? I’m hearing a lot of stories about intellectual property, around product development, product innovation. You’re talking to the right customers, but you’ve got to have something for them to buy. So, what are your shareholders or the new shareholders buying into?

Stephen Jenkins: So, they’re buying into a company that’s really already generating revenue, has survived on its own for over a year process of an IPO. So, a private company that’s been run like a private company, we may be going public, but we’ll continue to be very, very cash conscious. You have to be in this marketplace today. Investors are much more sophisticated there nowadays than they have been ever. So, I think one is, you know, providing that ongoing responsibility and fiduciary duty around our cash flow and what we’re doing, but also at the same time, they’re buying into this company that’s really operating, has proven operations already and also is stepping forward and more into the marketplace of larger data centres and energy efficiency.

Matthew Gordon: Okay. So, you’ve got a track record of producing cash through the crypto component, but you are morphing the company into allowing it to play in a much bigger space, which is an efficient energy space. What have you got today which investors can put their finger on and go I understand what these guys are going to produce, I understand what they’re going to sell, I understand where the revenue is coming from. How do they get a sense of that?

Stephen Jenkins: Well, one is I think you can always go back. Everything we’ve done to date is public record. So, that to me gives me comfort. Two is we actually have already built our own mobile data centre solutions for our own equipment and we’ve deployed those. They’ve been operating without fail since day one. So, May 2018 we deployed our first mobile solution for a data centre or for crypto mining. It’s irrelevant which one. And we’ve simply made more and more of those mobile data centres available for ourselves. So, people can come and see that they can see that we’ve delivered it. You know what I think is a very, very reasonable price. But also, it’s UL certified. So, we’re not one of the companies that jumped on the market and sort of put up crypto miners in a very sketchy way. We’ve had two huge power surges in Oregon. Both of them didn’t do any damage to us because we built our equipment properly. And I think those are things that we can say today that we’ve really proven our way.

Matthew Gordon: Right. I was doing some research and I was trying to find companies which did similar things to you and I couldn’t. Who are the other players? Who are your peers in this space at the moment?

Stephen Jenkins: I think there’s certainly lots I mean, you have lots that are focused on crypto mining. You have some people that are playing in the providing mobile data centres. You have massive players. You have Cisco, Sun Microsystems, you have massive players that are building these portable data centres now because everybody started recognizing there’s an opportunity there. So, you’re certainly seeing what I would call is fringe players trying a couple of things. And it’s just that I think it’s also the age of the market. It’s still very new. So, Sun Microsystems, they’re building mobile data centres that might be a million dollars a pop. So, there’s certainly room in there for us to operate.

Matthew Gordon: But how do you compete against people like that? I mean, they’ve got big pockets here. They can spend outspend you, surely? I mean, how do you win?

Stephen Jenkins: Yeah. So, I think what we provide is a really focused, detailed mobile data centre at a price that nobody else can compete with. We certainly have them operating already in a number of locations. So, we’re in two locations with plans to expand. So, I think we’re proving it out ourselves. We’re not just selling it and saying, there you go. We’re selling it. And we’re just simply making them better because we rely on them to operate ourselves as well. So, I think we’re going to provide a really good product that I think will be competitive in a space. And listen, nobody wants to be first, right? Everybody wants to be first to be second because you’ve got a proven product there. If there wasn’t competition in the space, it would mean there’s no business there. And having the big players in there shows you that there’s space, right? So, we’ll run the business very tight and be very, very competitive.

Matthew Gordon: Okay. That says to me you’re going to undercut the competition, right? In other markets, when you look at other verticals, the big guys will go in there. They don’t mind providing a loss because they want to own that space. I mean, are you susceptible to some kind of behaviour like that or do you think that it’s going to be easier for you to have conversations?

Stephen Jenkins: I think the market space is going to get very competitive. There’s no question. By saying that, you’ve got to find ways to build a very cost-effective product. And, you know, knowing who wants what and understanding how it works. We have those people I think already that they’re building some of those units for other people as well. So, we understand what’s going on in the marketplace. But it’ll evolve over time. And the mobile data centre market will become very mature in the next five years, I think.

Matthew Gordon: Yeah. There’s a lot of players out there in the market place, okay. So how does a small company like you hope to survive? Are you still going to be around in five years’ time? And what are you doing to ensure that you are?

Stephen Jenkins: Yeah. So, one is I think we’re creating our own revenue and we continue to keep our revenue stream alive with crypto mining. Number two is we’re building containers for ourselves. But at the same time, these data centres; Amazon, Microsoft, Facebook, they all are looking now at these mobile data centres. We can do those. We can provide reliability, quality, price. So, we know because we’re proving it out for ourselves that we can also do that for the bigger entities, regardless of who’s in that marketplace. If it’s Sun Microsystems or somebody like that building, we’re still going to be a player in there and there’s still going to be a need for the services we find.

Matthew Gordon: Stephen, thanks for running us through that story. I wish you every success for the IPO next week. I hope that goes smoothly. I think you’re in the right space. Very, very interesting space that you’ve decided to operate in. And you seem to be talking to a lot of the right names. So, I wish you well. Stay in touch and let us know how you get on.

Stephen Jenkins: Matthew, thanks. Thanks for your time and thanks for the questions. Also, I think it’ll be a good discussion after the IPO happens. We can we can start to delve into other areas, because I know that we’re really excited about moving forward and moving forward quickly.

Matthew Gordon: Thanks very much for watching. We hope you enjoyed that. And if you did, please click the button in the corner of the screen to subscribe to our YouTube channel. You can also catch us on our website CruxInvestor.com and Crux Cast, our podcast series. Plus, most days you can catch us on LinkedIn or on Twitter. We love getting your feedback, so please keep that coming. And we’ll speak to you again soon.


Company page: http://linkglobal.io/

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 blue sparkly bitcoin against the backdrop of black with dots of blue light.

The Nickel Investment Bible

A man walks on water, labelled 'This Article,' and pulls a man, labelled 'Your lacklustre investment decisions,' out of the swirling water. A wooden boat with a nickel on its front and full of men watches on in the background.
A photo of a pile of shards of nickel.
Nickel, nickel, nickel.

Nickel is the fifth most common element on earth. It is ‘a naturally-occurring metallic element with a silvery-white, shiny appearance.’(1) Frankincense, gold and myrrh? No. Nickel, nickel and…

However, if you’re an investor, I doubt you’ll be reading those words with any bubbling sense of excitement; you want to know one thing and one thing only: “how is this big hunk of metal going to make me money?” To realise the full potential of investing in nickel, one must have all the facts available to them.

The following serves as the definitive nickel investment article. It is filled with inside knowledge that the average investor would struggle to access. One shouldn’t consider investing in nickel without reading it. Sit back, relax, and take in all the information you need to make money investing in nickel.

The Commodity

Nickel occurs extensively in the earth’s crust. It had been utilised for thousands of years as meteoric iron before its isolation as an element in 1751 by Swedish scientist Axel Frederik Cronstedt.

Nickle: Key Properties

  • High melting point (1453 °C)
  • Strongly resistant to corrosion and oxidation
  • Can easily form an alloy
  • Magnetic (at room temperature)
  • Malleable and ductile
  • Can be a catalyst
  • Can be deposited via electroplating
  • Harder than iron
  • Good conductor of heat/electricity
  • Average life in many applications of 25-30 years

Applications of Nickel

Nickel is used in a massive 300,000 products, with fields varying from:

  • Engineering/Investment (33%)
  • Transport (20%)
  • Metal Goods (18%)
  • Home Appliances/Electronics (13%)
  • Building/Construction (10%)
  • Others (6%)
  • 70% of nickel’s specific application is alloying with a (minimum 10.5%) chromium to form stainless and heat-resisting steels. These steels form a multitude of items, from household cutlery to medical equipment.
A photo of a stack of stainless steel poles with holes in the centre.
Stainless steel is the main use of nickel.
  • 9% is used in alternative non-ferrous alloys. These have a more specialised application in industrial, aerospace and military equipment.
  • 6% of nickel is made use of in electroplating practices.
  • 6% is used in iron and steel castings and low allow steels.
  • A modern, rapidly growing use of nickel is in batteries for hybrid and fully electric vehicles and stationary storage. However, this still only accounts for 6% of present-day use.
A photo of a Tesla Model 3 battery pack inside a workshop.
A Tesla Model 3 Powerwall.
  • 1% of nickel is consumed to produce coins and for other electronic applications.

The Current Nickel Market: An Outline

The nickel price has demonstrated more volatility than a lion in a butcher shop. Since the 80s, Nickel has been regarded as a boom/bust metal that moves in giant super-cycles. The market saw a quite staggering boom, followed by a dramatic downturn and lingering bust.

Spot Price and Production Analysis

A primary factor behind nickel’s ascension to a high of $54,000/t in May 2007 was the rapid expansion of Chinese demand in the 2000s. However, this soaring price resulted in nickel becoming a victim of its own success. As prices rose, China began seeking more affordable options, thus turning to 200-series stainless steel (1-2% nickel) rather than 300-series stainless steel (8%) nickel; with this compression of demand, spot prices fell through a trap door.

A graph demonstrating nickel price in USD/lb against the date from Jan 3 1989 to Jan 3 2019.
A spot price chart that moves as frenetically as a broken elevator.

When nickel prices were high, a new source of cheaper nickel was developed: nickel pig iron, a version of nickel created using low-grade laterite ores and blast/electric furnaces. Nickel pig iron now accounts for 35% of international nickel supply, up from ≈0 in 2006.

The decrease in Chinese demand and oversupply combined to push the spot price of nickel off a cliff edge. Brief increases in the spot price, specifically around 2009, were attributed to the Chinese government’s economic stimulus. Subsequent price increases have been created by a nickel ore export ban from Indonesia in 2014 (partially over-turned in 2017) and again last week. A planned Filipino ban in 2017 never took place.

Nickel’s recent low point came in February 2006, with a price of $8,000/t causing 80% of the industry to lose cash.

However, over the last three years a large, and mostly permanent reduction in supply of over 200,000tpa (particularly Chinese nickel pig iron), and an increase in worldwide demand has caused the nickel market to recover surprisingly quickly. While uncertainty still exists surrounding high global inventories and the government policy in Indonesia and the Philippines, this upwards trajectory has caught the attention of many investors. This is especially true given that by the end of 2020, total market inventories are projected to fall below normalised levels, which paints a very promising picture of an increased nickel spot price.

Reasons to be Excited

If you’ve read any base metals company’s press releases in the last ten years, you will have heard a seemingly indelible torrent of positivity regarding the incoming EV revolution. If the macro is to be believed, the growth of nickel will be propelled. While, at present, nickel’s preeminent use is in stainless steel, an EV revolution would skyrocket the demand of nickel.

2006-18 quantities of nickel use for specific purposes are as follows:

  • 683,000t in stainless steel.
  • 103,000t in batteries.
  • 105,000t for other uses.

However, nickel forecasts for 2018-2030 place use at:

  • 729,000t in stainless steel, a 46,000t increase.
  • 825,000 in batteries, a massive 722,000t increase.
  • 119,000t for other uses, a 14,000t increase.

Nickel now has two growth drivers, batteries and stainless steel, whereas before it was just stainless steel. When investors also account for nickel’s specific importance in batteries, this is even more promising; another metal that is currently crucial for the EV revolution is cobalt which I wrote an article on and you can click here to read. However, because of cobalt’s controversial ethical issues, such as using child labour in the Democratic Republic of Congo, companies have been pressured into signing up to the Responsible Cobalt Initiative. Some high-profile individuals like Elon Musk, and companies like Panasonic, have stated they are actively at work to virtually eliminate cobalt from their batteries. By reducing cobalt in batteries, the beneficiary is nickel; in a recent interview with Crux Investor, Conic Metals explained the development of batteries with as much as eight times more nickel than any other metal in the battery designs, including cobalt.

The Vanadium Redox Flow Battery (VRFB) is yet to become a serious contender in the market because of their excessive weight and the poor ratio of vanadium to electricity stored. Unlike the short high-burst energy of Lithium-ion batteries, VRFB is seen as a means of long-term energy storage to allow for management of peak-flow energy requirements (we will write about this in the next few weeks). At the end of the battery’s life, the Vanadium is reusable for either use in steel or a new battery. Nickel-lithium batteries are a future technological prospect and are predicted to hold more than three and a half times as much energy per pound as lithium-ion batteries, while also enhancing safety.

All the production signs for nickel are incredibly promising, so what about the price outlook?

Price Forecast:

Year Nominal Constant
2018 13,122 13,122
2019 (f) 13,469 13,127
2020 (f) 15,000 14,249
2021 (f) 17,000 15,740
2022 (f) 18,000 16,244
2023 (f) 19,250 16,931
2024 (f) 19,811 17,000
2025 (f) 20,306 17,000
2026 (f) 20,814 17,000
2027 (f) 21,334 17,000
2028 (f) 21,868 17,000
2029 (f) 22,414 17,000
2030 (f) 22,975 17,000

The LME forecasts steady growth in the USD$/t spot price of nickel up until 2030:

In terms of constant 2018 dollars, the nickel price will have to average around $17,000 to incentivise sufficient new capacity to meet increased demand. Moreover, analysts have speculated the capital costs for non-Chinese and non-Indonesian integrated projects may need nickel prices above $25,000 to gain a return. However, increased EV demand is likely to be satiated by these cheaper projects in addition to high-pressure acid leach projects.

Inside Investment Tips

Now you’ve had some insight into the financials of the nickel market, it’s time to hear some crucial inside knowledge that could make or break your investment.

The primary drivers behind the EV hysteria are companies themselves. When you actually dig a little, the truth is the EV revolution is not as close as CEOs would like you to believe. Researchers are also uncertain as to when electric vehicles are going to take over. There are a lot of factors at play and while the trend is towards embracing EV to reduce our carbon footprint, there are still a number of psychological and financial barriers for the consumer to overcome.

The usability of this information will vary based on two things:

A photo of a pile of dollar bills.
  • Your confidence in the EV macro.
  • Your expected speed of returns.

If you have a wholehearted belief in the EV macro, it doesn’t matter if it happens tomorrow, the next day, or in ten years’ time, it is going to happen, and when it does, prices are going to rise. Therefore, if you’re a patient investor with some time to spare and have disposable income that you can afford to wait for a return on, now could be a great time to invest in a nickel company.

However, if you don’t fully buy into the EV thematic, nickel isn’t the commodity for you. Perhaps you foresee a shift in direction when it comes to vehicular transportation, or perhaps you see nickel as a commodity that will become obsolete in batteries after further advancement. Maybe you believe there will be an even longer time scale of 20+ years before EV rises to prominence, in which case many of the companies you might invest in today could have gone under, especially given nickel’s track-record of erratic prices.

Lastly, if you’re an investor looking to make a quick buck, don’t listen to the hype. In Crux Investor’s interview with Conic Metals Corporation (https://www.youtube.com/watch?v=9PWkM9RxFy4), it was clearly laid out that current spot price increases are not due to electric vehicle demand, and are instead generated by asset discovery, general euphoria and the Indonesian export ban on nickel ore. The EV revolution is a few years away at best.

What Nobody is Telling You

…smelting companies will march to their own drumbeat

Some investors might view all the information already mentioned as more than sufficient for them to make an investment decision on nickel. However, there’s an incredibly important secret that big nickel mining companies aren’t letting you in on: the nickel smelters currently have a huge amount of their own raw product on site, and the smelting companies, in many ways, control the market and the ability of public nickel producing companies to forecast. This means nickel mining companies are at their mercy; smelting companies will march to their own drumbeat. 

The Ten Commandments of Nickel Investment

A photo of an open bible with a woodland background.

To conclude this article, here are the ten things to be aware of when investing in the nickel market:

  1. Nickel is a volatile asset; its price is often unpredictable; depending on what type of investor you are, this is either an opportunity or a curse.
  2. The EV revolution is by no means just around the corner. Some say it is two years away from kicking in. Others point towards a longer timescale. However, nobody is disputing its inevitability.
  3. All financial projections point towards a prosperous future for nickel in batteries as there are very few large-scale operations globally; with nickel, scale is king.
  4. China, Indonesia and the Philippines are the foremost producers of lower quality steel, which contains only 1-2% total nickel. Indonesia has just stopped all exports of nickel.
  5. Nickel is almost certain to be central to any evolution generated by electric vehicle demand. Other battery metals (such as cobalt) lack its longevity.
  6. The smelters control the market. Until they can make money, no-one makes money.
  7. Not all nickel companies have the cash or assets to attract capital investment to last until the EV demand commences. Choose your nickel investment carefully.
  8. For the next 12 years, total nickel production is projected to be almost double what it has been for the last 12 years.
  9. As the nickel price recovers a lot of scrap metal will come into the market causing a dip in short-term prices until Q3/20.
  10. Don’t make investment decisions based on sentiment. Look at a company’s management and level of experience. Investigate their assets and potential. Analyse the point in the developmental cycle the company is at (ready to mine, or still exploring). Work out if the company’s priorities are aligned with its shareholders’. Finally, educate yourself fully on nickel by reading this article again and again and again. Oh, and maybe once more for luck.

An Example of a Good Nickel Company:

Examples of nickel companies I feel have great potential are Canada Nickel, Conic Metals or RNC’s Dumont asset. I’ll be writing a full piece on them in the near future; but, for now, happy investing!

  1. https://www.nickelinstitute.org/about-nickel/

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

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A man walks on water, labelled 'This Article,' and pulls a man, labelled 'Your lacklustre investment decisions,' out of the swirling water. A wooden boat with a nickel on its front and full of men watches on in the background.