China Gold Int (TSX: CGG) – Gold And Copper On A Grand Scale

A photo of a silhouette hand picking out a gold Chinese ring.
China Gold International Resources Corp.
  • TSX: EQX
  • Shares Outstanding: 113.5M
  • Share price C$12.6 (21.02.2020)
  • Market Cap: C$1.43B

We recently sat down for an intriguing interview with Jerry Xie, Executive Vice President and Corporate Secretary of China Gold International Resources Corp. (TSX: CGG, HKSE: 2099).

Investors may want to read one of our most recent gold-related articles, or even watch a different gold interview.

Gold had a good year and an especially positive 2H/19. However, China Gold Int. had a negative correlation on its share price throughout 2019. The company operates two producing gold mines that form a low-grade, bulk-tonnage gold operation with a copper by-product. The operational statistics look good on paper, so why this share price tail-off? We discuss:

  1. The Decline In Share Price: Why?
  2. The Gold Market Outlook For 2020
  3. How China Gold Int. Plans To Get The Share Price Back Up

Company Website: http://www.chinagoldintl.com/

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

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

A photo of a silhouette hand picking out a gold Chinese ring.

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

A photo of Pan African Gold CEO, Cobus Loots.

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

A Decisive, Ambitious Team

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

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

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

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

The key highlights from the update?

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

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

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

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

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

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

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

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

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

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

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

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

A photo of Pan African Gold CEO, Cobus Loots.

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

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

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

The Background

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

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

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

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

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

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

The Debt Package

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

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

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

Coringa – Full Speed Ahead

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

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

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

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

CLICK HERE to read the full press release.

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

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

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

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

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

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

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

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

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

That brings me to Salazar Resources.

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

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

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

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

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

A diagram of a VMS deposit.
A VMS deposit diagram

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

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

So, what does this mean for investors?

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

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

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

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

RNC Minerals (TSE: RNX) – Turn Around and Take a Bow

Several people stood against the backdrop of a chart. They are trying to push the line back up, and are succeeding towards the end by standing on each other's shoulders.
RNC MINERALS
  • TSE: RNX
  • Shares Outstanding: 606.32M
  • Share price CA$0.47 (15.01.2020)
  • Market Cap: CA$284.970M

What a year 2019 was for Paul Huet and RNC Minerals.  The implementation of a robust gold-focussed business plan delivering consistent production numbers and reducing costs has resulted in perhaps our turnaround story of the year. And just when the market needed to hear it.

A screenshot of the thumbnail of Paul Huet's interview with Crux Investor.
Paul has impressed in his recent interviews with us.

All Change

RNC Minerals today bears little resemblance to the vehicle that Huet walked in to as the CEO at the end of May last year. That’s not to say Huet hasn’t benefited from a good year for the gold price, he has. However, at the beginning of his reign RNC Minerals had just $1.3M in the bank. It ended the year with $37M, of which RNC paid down $3M of their debt to reduce interest payments.

This turnaround hasn’t been because of luck. As far as we have heard in our various interviews with Huet, this has been about giving clear direction to the market and restructuring the company to allow RNC to deliver his vision; now entirely focussed on gold (the fully-funded Dumont nickel project patiently waiting for more signs of recovery in the Nickel market); reducing expenditure in the right areas, but not to the detriment of long-term productivity (always a cheap and quick win that has long-term negative consequences); and better communication, both internally and to shareholders. “That wasn’t so hard, was it?” you can almost hear relieved shareholders saying.

A photo of large nuggets of gold on a muddy surface.
Gold, gold, gold: every investor’s dream.

RNC is producing gold and is, therefore, producing cash. They hit a record monthly consolidated gold production of 9,620 ounces for December 2019, undoubtedly aided by their acquisition of the HGO mine and mill. For Q4/19, production was an impressive 26,874 ounces. A complex, detailed overhaul of RNC’s production processes has likely been the primary driver behind this performance. The grade is a consistent 3g/t and occasional large coarse gold finds will always bring a sprinkle of magic the market so craves. Huet is playing down the ‘magic’ and is keeping employees and shareholders grounded and focused on doing the basic things well. This has been an encouraging start to the Huet era, but there is always more to be done. He needs to drive down the AISC, currently sitting around the $1,150 mark, further towards $1,000. If he can deliver this, we believe the market will react positively. In the meantime, the building up of cash reserves is a very welcome distraction.

RNC exceeded 2019 expectations only because of a late charge for the line. In the second half of 2019, gold production reached a total of 51,090oz, exceeding the top end of RNC’s own production guidance (42,000 – 49,000oz). While there have been ‘minor disruptions’ caused by Australia’s bushfires in December, the consequent regional road closures have had little impact on operations, because stockpiles and Baloo ore were processed during the road closure period. No impact is expected to Q1/20 results. RNC’s supply from Beta Hunt and the delivery of reagents to the mill has now been restored. In addition, its HGO mill is operating at full capacity with feed coming in from both Beta Hunt and HGO. Keeping the mill filled with its own ore is the number one priority. Talk of adding an ore sorter fills the chat rooms and we for one would welcome any news from the company on this front. Productivity can be greatly increased, and costs come down; it is typically a $2M-$5M outlay and is something that pays for itself in 6-12 months (that’s what we read). Let’s wait.

It really is all change at RNC, and this change is particularly evident at the top. There has been a key addition to the board, with the appointment of Chad Williams. Williams is Chairman of RedCloud Securities and presumably brings access to more institutional investors. This clearly suggests the company’s continued move to consolidate more shares into the hands of large institutional investors. Personally, we think this makes sense and will help bring more stability to what has been a very volatile stock, indeed, one that continues to be shorted, something else an increased institutional register can help with.

In light of this change, it would seem opportune moment for Huet to tell us what the remainder of RNC’s Board is bringing to the table.

RNC has been clear, including our recent interview, they will not be going to market to raise capital this year, it is completely off the agenda. There is no ambiguity here as far as we are concerned. There was the stumble on the investor call last year on this topic, so there are those who will keep bringing it up. My take at the time was that the money was needed and it would create financial freedom for RNC Minerals to make the fundamental changes to the infrastructure, people and simply pay suppliers. We haven’t changed our minds since then. It was important. The company was running on vapour.

It’s important to talk about Dumont. It remains on the books as a potentially huge upside given the right market conditions. The JV with Waterton has $3M and covers the overhead costs. How and when it is monetised is down to Johnna Muinenon. She is clearly bright, and they have done a lot of work, but it is the nickel market opening up that will inform her. We can’t see anything happening until 2H/19.

I look forward to the release of the 2020 guidance within the next few weeks, which Huet himself has said will include guidance and production targets (unlikely to include coarse gold targets), costs & savings, AISC target and hopefully talk of more renegotiated royalties. I guess we’ll just have to wait on that one!

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.

Several people stood against the backdrop of a chart. They are trying to push the line back up, and are succeeding towards the end by standing on each other's shoulders.

Orvana Minerals – Are You Buying this Turnaround story? (Transcript)

An aerial shot of Orvana Minerals’ Don Mario gold mine in Bolivia.

Interview with Juan Gavidia, CEO of Orvana Minerals Corp (TSX:ORV).

Orvana Minerals is a multi-mine gold-copper producer listed on the TSX with assets in Spain and Bolivia. Gavidia claims Orvana is a “100,000oz gold producer.” In addition, Orvana Minerals has recently filed a PEA for the Taguas Mining Property golf-silver project, Argentina.

There will be concerns regarding Orvana Minerals’ ability to operate effectively given the disparate locations of its assets, but Gavidia insists regular flights are nothing more than a mild inconvenience.

Orvana Minerals started the year with a share price of 0.16CAD, rising to an encouraging peak of 0.40CAD in August, courtesy of a rising gold price and the announcement of Oravana’s Argentinian asset, before plummeting back down to a worryingly stagnant 0.14CAD as of today. The company has a market cap of CA$19.13m and around $10m in the bank.

Gavidia alleges that market perception regarding liquidity is a large problem: Orvana Minerals has a 52% controlling shareholder. Investors may feel this perception is a reality, but Gavidia insists there is still 48% to play with, but the market simply chooses not to. Another issue is getting the new Orvana story out to prospective investors; since the successful introduction of an operational strategy that focused on lowering unitary costs and extending life-of-mine of operations, while maximizing cash flow, Orvana has seen a reduction from a $1400 AISC to an $1100 AISC. Gavidia hopes to reach closer to $1000 next year.

Orvana Minerals is currently discussing if the TSX is a limiting factor for them, and will make a decision in the near future regarding where the place to be is.

Gavidia cites the company’s production performance in addition to its experienced management team as reasons to climb aboard the Orvana gold-copper train. Orvana has good assets and could be a prospect in the future. However, with gold having as good a year as it has, investors might be worried that a gold company is struggling so much.

What did you make of Juan Gavidia? Is Orvana Minerals a gold-copper company of the future? Comment below, and we might just ask your questions in the near future.

Interview highlights:

  • Company Overview
  • Assets in Different Jurisdictions: How Did They Get a Hold on Them and What’s Their Focus?
  • Turning the Business Around: What are the Changes Being Made and When Can Investors Start Seeing Results?
  • AISC & Cost Cutting Measures
  • Listed on the TSX: What is it Doing for Them?
  • Argentina: Is it a Difficult Jurisdiction to Mine in?
  • Why Invest in Orvana Minerals? What Experience Have They Got?

Click here to watch the full interview.


Matthew Gordon: You’re over here for the 121 conference. What are you hoping to achieve?

Juan Gavidia: To connect with investors. And also with the mining community, because Orvana is ending up now big turnaround process of almost two years now. So, it’s always good to connect with people to give them the good news of our results.

Matthew Gordon: And have you got many investors in Europe, around the UK?

Juan Gavidia: We have some.

Matthew Gordon: You have some but are hoping to connect with some new ones.

Juan Gavidia: All the time.

Matthew Gordon: Why don’t we start off with a one-minute summary for people who are new to the story and haven’t heard it before.

Juan Gavidia: Well, Orvana is now a 100,000oz gold producer, a junior out of Toronto. However, our operations are one in Northern Spain. Astraeus, 60,000oz per year. And the other one in Bolivia, in the Santa Cruz region next to Brazil, which is a 40,000oz producer. So those two assets are the ones comprising Orvana.

Matthew Gordon: So how did you end up with them? Obviously very different jurisdictions. So how did you end up with both of those?

Juan Gavidia: Because Orvanaat the beginning it started off the asset in Bolivia. So, we had a very successful underground operation from 2002 to 2009 with that funding, we acquired the property in Spain, which was an opportunity other time.

Matthew Gordon: What are your hopes? Are you going to just focus on those two assets for now? And how do you split your time, management time?

Juan Gavidia: I mean, the joke is I’m in seat 3J, airplanes version. That’s pretty much the situation. However, it’s going to increase the issue because we also have a project in Argentina in the San Juan province, which is the most mining friendly province in Argentina. There will be an open pit. We are skilled in that to be developed over the next four years.

Matthew Gordon: So you talked about a turnaround process for three years. It’s a long, long, long turnaround process, right? So, what are you hoping to achieve? What does that mean, a turnaround process?

Juan Gavidia: Actually, the physical work was done almost a year and a half ago, which was to change their mining strategy. Before it was mining lower grade hard rock with some softer ground, high-grade rock. Now we are moving into a 50/50 type of depot blending. So, mining is more difficult because it’s softer ground, at a higher grade. So, the mastering of the mining in the softer ground was actually the turn around. That’s pretty much done since late 2018 and we’re just showing up with the goods, with the results.

Matthew Gordon: I’m always uncertain what’s going on in the minds of the management team. So, you had a scenario which wasn’t working for you economically. And you’ve had to come in and to reassess the assets you’ve got and work out how you can turn this business around. But how are you going to do that? The 50/50 planning, is that the solution?

Juan Gavidia: It’s actually been done. In 2019 our fiscal year, which ended in September, was showing pretty much the first full year of the results of the new mining method. Mining method is basically you have an underground body which has two sections; hard rock and soft. Soft, higher ground is higher grade. So, they wait to do this. You need to change the fleet to some extent. You need to change the skills of the crews to some extent. And you need to start doing other types of processes. It’s more like industrial engineering that work. At the end of it, the new processes, the new fleet, the retrained crew produced a higher tonnage of their sulphur ground ore and when we reached the 50/50 that’s when we said we’re OK. the where we reach the 50 50. Now, the end result is the average grade, so before we were almost around 2 grams per ton, we are now above 3. So, the grade is king.

Matthew Gordon: When is this going to start having effect financially for you?

Juan Gavidia: 2019 was the first year where we were very much above the average over the previous years, cash flow positive share, which is allowing us not to require any financing over the last twelve months.

Matthew Gordon: But you’re around USD$18M market cap. It’s not a big company. You’ve got USD$10M in the bank? You’re not seeing a lot of reflection for the work that you think you put in this year in the market. When’s it coming?

Juan Gavidia: So, there is a number of factors. Factor number one, we have our main controlling shareholder, 52%. So that’s a problem with a market perception about liquidity, etc..

Matthew Gordon: Is there much liquidity? Is there much trading?

Juan Gavidia: The liquidity, we have 48% to play with but the market doesn’t play much with our stock. The reason for this is before they turned around, we didn’t have a very stellar performance. So, we are talking to investors. We are coming to these kinds of gathering’s to tell the story because the story in not very good terms was lasting since 2011/2012 all the way to 2016. So, is it too easy to get those results but more difficult to also turn around the perception of the company? So, we are battling the perception. We are also telling the story that the main shareholder is not such an influencing factor in the performance because we are…

Matthew Gordon: Who is this group?

Juan Gavidia: It’s a family office out of the U.S.

Matthew Gordon: A US family office. They’re not involved in the day to day in terms of no decision making, but they’ve got to sit on the board?

Juan Gavidia: The board is only 6 people, 5 are fully independent.

Matthew Gordon: I want to talk about this turnaround because that’s the exciting bit that you want to tell the market. What effect is that having on the AISC because I know the AISC has been quite high?

Juan Gavidia: Well, the cost at the peak of the pre-turnaround situation we are approaching USD$1,400. Now we are approaching USD$1,100, closer to USD$1,000. We’re shooting for the next year to be closer to a thousand. Once you have the fleet catching up on the features of the fleet, once you have the crew caught up with the new processes. And also, we have the infrastructure ahead of us like you have the de-watering, all the ventilation and all the infrastructure inside the underground mine also up to date. Then you are not remediating anything. You’re moving forward. So that creates a more proactive approach, lowering the unit costs.

Matthew Gordon: AISC has been circa USD$1,400 bucks coming down towards USD$1,100 and you would hope at some point to reduce that more.

Juan Gavidia: Not hoping, we’re planning to reach that.

Matthew Gordon: You’ve got a lot of cash going in at the moment and you’re putting in infrastructure so your costs will remain high for a while, but at some point you’re going to have to stop managing…

Juan Gavidia: The underground mine that we are managing in Spain is going to be always be around USD$1,000. Even probably USD$980 or USD$950. But it’s going to always be USD$1,000, it’s underground. And the grades are going to be about 3g/t. If you have a mine of 5g/t or 6g/t, your unit cost goes down.

Matthew Gordon: You’ve got Bolivia, Spain and Argentina. Small company, limited cash, unless you’re going to go out to the market and raise more money because the margins are still small, even at today’s gold prices.

Juan Gavidia: We need to announce that our guidance still in a few weeks, however, we do plan on a strong cash flow position out of Spain for next year.

Matthew Gordon: How do you finance three different locations with limited resources?

Juan Gavidia: Of course, Spain. Bolivia is moving, it’s transforming, it’s repurposing the operation. It used to be underground, moving too open pit. And now we are moving into reprocessing stockpiles and tailings, and that should last at least for another 7 or 8 years. So that’s a very long, non-mining full processing phase for the Bolivian assets. So, that’s a cash flow self-sufficient. Financing for operations in Bolivia is actually very fluid for us. There is a local market. There is a local banking system. It’s also even a local stock exchange in Bolivia. So, we are tapping into all those resources. So, it’s a very self-sufficient situation. You will see in our financial statements that Spain, Bolivia, funding for operations, which is structural, is not a catching up type of financing, it’s local. So, we don’t have expensive funding coming from the usual suspects in terms of mining in Toronto, London, or New York. We’re having out of Bolivia like banking system and Asturias Northern Spain banking system.

Matthew Gordon: Why are you here?

Juan Gavidia:  Because we need to develop things, for instance Argentina. Argentina is our asset that is still in pre-feasibility. So, we need to move into feasibility. That would require extra funding. And eventually we will need to move into JV partnerships. So, basically to tell this story, to improve his stock price, to tell the story about the Towers project in Argentina, JV Partnerships. That’s the main reasons we’re here.

Matthew Gordon: Why are you on the TSX?

Juan Gavidia: Well, there is a lot of opinions around about where to be. ASX, TSX or private. So, in our case, we are discussing that very strategic situation. Actually, these days we will actually have this strategy session with a board every year, and that’s actually happening next week. We may have some news, but in general the VI is to be more liquid in whatever stock exchange we will be in ending or landing. Right now, TSX for sure, but we need to take some actions about our share price for sure. It’s structural.

Matthew Gordon: Something happened in June-July. What was that? Because we saw the price go up and then straight back down again to where it was.

Juan Gavidia: Two factors. We announced the Argentinian assets and we start riding the wave of the gold price up take. So those two were almost like coincidental. We would move up to CAD$0.40. And then we were subject to this pressure and short selling type of strategies. There are some articles about the topic, a lot of people, a lot of companies. And that was what we were facing. We saw the reports about short selling all these mechanics that we face because really the controlling shareholder is not worried in the short term of that situation.

Matthew Gordon: You’re not worried until you’ve got to raise some capital?

Juan Gavidia: So, these days we are selling the merits of the assets as opposed to the market cap of the company.

Matthew Gordon: You think there’s two things. One, the announcement of Argentina and two, the gold price. Clearly your share price has come back down again. That can’t have been just the gold price, even though you’re a producer, it was the excitement of what you were going to do with Argentina. Do you think the market hasn’t heard enough about what you’re going to do there?

Juan Gavidia: Yes. Well, that’s part of the reasons. Usually there is no one single answer for anything. But in this case, we need to continue announcing the next development phases of Tower’s. We are taking the attitude of perhaps a little bit too much time on the legal issues of opening the local subsidiary, moving the actual asset into the local subsidiary, looking to all the mining registrations in Argentina. But that’s ending within the next 4-8 weeks and then we can next announce **** works, moving from PEA (preliminary economic assessment) into PFS (pre-feasibility).

Matthew Gordon: Are you finding Argentina difficult?

Juan Gavidia: That’s paperwork, in terms of corporate registration in Argentina. So, there’s legal issues, not mining permitting. Mining permitting in San Juan province is the most mining friendly in Argentina. That was very, very fast.

Matthew Gordon: Why should people be listening to you versus all the other gold producers out there at the moment trying to catch a break?

Juan Gavidia: Because we have the results. So, we said something to investors, since two years ago, we are announcing quarter after quarter that we are improving. Right now we are completing our fiscal year, 2019, and we have the goods to show. So that’s pretty much what we’re doing.

Matthew Gordon: Tell me about the team that you’re working with. Who else are you working with to help you manage all of this, cut the costs and get the AISC down and go tell the stories to market?

Juan Gavidia: Excellent question. Thank you very much. So, I am a former mining person from major gold mining company and also I am Peruvian, so I saw first-hand performance of experts in countries like Spain, etc. or Bolivia, but also I saw the value of local teams properly developed. So, the emphasis in these last three years has been to, in a very intense way, develop local teams. So, we brought the experts for heavy, heavy in depth advising, consulting on improving the skills of the local teams. So, the general managers of both places, the technical top managers at both places are locals. And we do have IVP operations, which is an expert who is also like me, moving around the sites.

Matthew Gordon: Who on the team has been there and done it before? Who has created shareholder value? Has anyone done any exits? Anyone created larger companies, public companies before? What’s the track record of people knowing what they’re meant to do next?

Juan Gavidia: In terms of track record on how to put public companies in good shape, we have our CFO, which is with us here and then myself. So, we will be working with these since probably 2012. I came a major but the junior is very interesting.

Matthew Gordon: It’s a different world.

Juan Gavidia: I actually enjoy a lot. So we are creating, I think a very good result for the marketplace. We do have all these headwinds coming from the past, but we need to keep pushing forward.

Matthew Gordon: You do need to keep pushing forward. Juan, thank you very much. Really enjoyed hearing that story. First time for us. Stay in touch with us. Let us know what goes on. I like the fact you’re driving the costs down and now you’re trying to tell the story in the marketplace. Let’s see what happens.


Company page: https://www.orvana.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.

An aerial shot of Orvana Minerals’ Don Mario gold mine in Bolivia.

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

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

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

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

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

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

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

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

Let’s get our feet back on the ground.

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

What RNC DO know.

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

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

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

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

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

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

Business As Usual?

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

CLICK HERE to watch the full interview.

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

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

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

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

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.

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.

“There’s gold in them thar hills!”

A photo of a pile of 24k gold bars.

Over a century old but Mark Twain’s sentiment remains that there are riches to be found. For thousands of years, gold has been a popular choice of investment and a consumer good. The complexity of gold makes it enormously hard to understand, even for those in the gold mining industry.

As a new investor myself, I am on a steep learning curve to find out as much as I can about investing in gold, so that I can make sensible investments with my own money. So please do join me on my discovery of gold production and the journey I am now on to find out how to make the safest investments, with the biggest returns! Please do feel free to make suggestions and comments below, which will both help me and other potential investors in the gold market. Remember you once stood where I stand now! We all have different needs and goals from our investments and each of us will come at it with different knowledge and expectations.

So how should investors make informed decisions when they don’t understand what drives the price of gold? It appears that it is mainly driven by demand and alterations in reserves, rather than purely from the gold mine supply. As investors, we are looking for a strong return on our investment. Without good management, no asset can be successful. I am looking at company track records, are they flatlining or they making good decisions and producing more gold at lower cost? A profitable company is not necessarily going to make me money… this week I learned about ‘Shorting’… but more of that another time. What I did know walking into this is that I only make money if I sell my shares for more than I bought them for.

Tempting as it would be to go out on a ‘gold rush’, the inexperienced investor must understand the importance of looking at a company’s management experience, the corporate structure, their assets, their financial position and how they promote themselves to the market and investors. The saying goes that “a fool and his money are soon parted.” There is a ‘gold minefield’ of information out there but this often overlooked. Finding out as much as possible about a company, their experience and management structure, assets and financial position is crucial before investing. Lacking gold mining ‘know-how’ makes it notoriously difficult to make sensible decisions on future investments. Some people make money from investing in gold and some lose, so if you have any tips for me on making money and good investments, please do highlight these below. I am grateful for all shared knowledge.

Investing issues and the value of gold

As part of my research, I have found encouraging quotes from the financial markets:

“‘The value of gold hit a six-and-a-half-year high at $1,546/oz at the start of September 2019, driven by investor sentiment and macroeconomic factors,” in its latest ‘GFMS Gold Survey’. Over the third quarter of the year, gold recorded a “spectacular” performance, with its dollar value appreciating by 12%, compared with the prior quarter, and was valued at 22% more year-on-year, at an average of $1 472/oz. (9)

“Further, a visible shift among the world’s key central banks towards a more accommodative monetary policy this year has seen investors flee back to safety, making gold shine even brighter.” (6)

It is estimated that ‘the production globally of gold will break new record levels of between 3,380t and 3,390t this year, which would be an increase from the 3,332t reported in 2018’. (6)

I have discovered that it would be unwise to only invest in gold though, as it can be high risk. Although it should not be dismissed as an investment, as it can be a ‘store of wealth’. It is cited that investors turn to gold, when they are ‘scared’, which in turn boosts the value of gold, when stocks are falling.

Adding to my confusion is whether gold is seen as a commodity or a ‘non-printable’ currency. Experts argue over this endlessly, but many will see it as behaving as both, but nevertheless it is seen as a ‘global monetary asset’. Gold has many uses and purposes and it is in constant world-wide demand, always available for use and not typically consumed like other commodities.

I also identified that investors will often look at the Environmental, Social and Corporate governance (ESG) of an and how it manages risk through environmental, social and governance issues. Sustainable investing! Yes, a company’s organisation when evaluating the financial health of a company, their long-term business performance who promote their business with strong environmental, social, ethical values in accordance with corporate governance seek to generate positive returns. Investors who are socially minded will be encouraged to invest in an organisation which endeavours to manage its carbon footprint and have a positive long-term impact on the local community of the mine, the environment and the company.

The jurisdiction, geopolitical and economic state of the country producing the gold will affect gold production. Is it stable or uncertain? Are there concerns of lower interest rates or a slowdown in economic growth? Are there issues with the government? Trade disputes, access to licences and permits, power supplies, riots and political unrest, difficult climate conditions limiting mining prospects, accessibility of water, transport issues or access to skilled labour, all provide their share of difficulty. These are very real and important issues to consider, as they will all affect the gold production, availability and cost price.

When investing, it appears that market downs can often boost investment demand for gold. Competing assets, such as bonds can also influence gold attitudes and price trends and capital flow can affect the performance of gold. Some questions we should be asking ourselves are: Is there enough investment in infrastructure? Is it a well-trodden path? Is there potential for global expansion? Are there restrictions on cash?

So much to learn and take in, it makes it even more complicated when I think about parting with my money.

The streets of London are paved with gold

Initially, I have decided to look at two gold mining producers who have many similarities but who also who have differences. One is a large producer and one is a small to medium producer.

I feel that the similarities are that they are both are UK based companies listed on the London Stock Exchange. They are both honest companies and successful in mining high-grade gold from two underground mines, with strong management teams. Both offer steady growth and dividends to shareholders and both make money when the share price goes up. Both face operational issues within the jurisdictions that they work in. I shall give some background detail about each company and invite you to ‘dig deeper’ through the links!

The two companies are Pan African Resources (large) (AIM: PAF) in South Africa and Serabi Gold (small and soon to become medium) (AIM: SRB) in South America.

Serabi Gold is listed on the London Stock Exchange https://www.londonstockexchange.com/exchange/prices-and-markets/stocks/summary/company-summary/GB00BG5NDX91GBGBXASX1.html

An aerial photo of Palito Gold Mine.
Palito Gold Mine

Mike Hodgson is the CEO at Serabi Gold. He had interview recently with Matthew Gordon of Ptolemy Capital and Crux Investor https://cruxinvestor.com/opinions/serabi-gold-lse-srb-tsx-sbi-steady-growth-for-shareholders-at-last/.  

I like www.cruxinvestor.com as they have an easy style and less technical of interviewing but get in to the important detail with the CEO. The CEO has a chance to explain the strategy and story as the interviews tend to be 30-50mins.

As a gold exploration and production company, Serabi Gold is based in North-central Brazil and is involved in the development of gold deposits in the area.

They own the Palito Mining Complex, which is currently producing approximately 40,000 ounces per annum. While this is deemed as relatively small, their gold production should double when their recently acquired Coringa Gold Project goes fully into production. This should increase their standing to a medium size producer and could make this a less risky investment.

We got the right team in and the formula for success has been the mining. My saying always is ‘grade pays, tonnes cost

Mike Hodgson

Serabi Gold has a very long and successful history of operation in this area of Brazil and takes its relationships with local communities seriously.  They are keen to ensure their long-term impact on society; the environment and that business holds strong.

During the above-mentioned interview Mike was asked about the team around him and their level of experience and this was his response:

“We got the right team in and the formula for success has been the mining. My saying always is ‘grade pays, tonnes cost’”. (3)

Some of the difficulties that are faced by Serabi Gold are maintaining the supply of power, internet communication, together with conditions such as water filling trenches. They also come up against difficult climate and terrain with a tropical high humidity climate, tropical jungle tree canopy and a wet season between October and April. These factors play their part, but the company does state that work can still be carried our year-round.

Other risk factors that play a role include political changes in Brazil, regulatory issues, changes in law together with social unrest, currency exchange fluctuation and the changes in the gold price. All these factors have made me think about how difficult gold production is.  Serabi Gold is overcoming these issues, with excellent results.

The share price has risen this year following a period of 3-4 years of being relatively static. This move in share price would appear to be because investors see the acquisition of Coringa as an indication of the company’s growth ambitions as a gold producer.

Pan African Resources is also listed on the London Stock Exchange https://www.londonstockexchange.com/exchange/prices-and-markets/stocks/summary/company-summary/GB0004300496GBGBXAMSM.html

A photo of two maintenance workers checking mining equipment.
Pan African Maintenance Workers

Cobus Loots is the CEO and he also had a recent interview with Crux Investor https://cruxinvestor.com/opinions/pan-african-resources-aim-paf-a-dividend-paying-gold-producer/

Pan African is based in South Africa. They are a mid-tier African-focussed gold producer with a production capacity in excess of 170,000oz of gold per annum. They own and operate a portfolio of high-quality, low-cost operations and projects and they like to grow business in a value-accretive manner to benefit stakeholders and that meet their stringent investment criteria.

Pan African has two large underground gold mining complexes, one at Barberton, one at Evander. Cobus Loots said “Operationally we exceeded our production guidance for the year past. That’s obviously quite a positive. Actually, from all operations we had an improved performance. Pan African has emerged at year-end as a safe, low-cost and long-life gold producer, following the successful execution of our strategy.” Asked whether he plans to raise any more money for capital expansion programmes, he responded “We are funded as far as the existing projects are concerned. So, there’s no need for us to go to market. I think the shareholders want to see us deliver on what we said we would do. 2019 was a first or second step in doing that and 2020 should be more of the same.” So, to me this says no more dilution of investors shares. That’s a good thing”. (4)

Pan African has emerged at year-end as a safe, low-cost and long-life gold producer

Cobus Loots

The South African Government has established targets for the mining industry in terms of social development and community upliftment that are laid out in the Mining Charter. President Cyril Ramaphosa outlined the “steady, but sure” progress being made to make South Africa a “more competitive investment destination”. An Investment Fund being set up to attract both public and private finance. (6)

With a large focus on seeking sustainable growth, Pan African invest in their time and efforts in ESG. They understand that this can positively affect their long-term business performance and health of their company through strong risk management. There is a chequered history in South Africa, and they are operating in an environment fraught with risk because of unionisation issues, artisanal miners, high unemployment in the country which has led to rioting.  With all these factors to deal with, Pan African strives to be a low all-in sustaining cost (AISAC) producer of gold in South Africa.

I have to say I admired the way both CEO’s talked honestly about the difficulty of mining and didn’t appear to be trying hide anything or mislead me.

So, to invest or not to invest, that is the question?

Please look at the Crux Investor website and the company profile pages https://cruxinvestor.com/companies/. I found it useful. I included the links for both Serabi Gold and Pan African Resources in my short company summaries. The company pages will give insight and provide you with more detailed information about the issues each company is facing. You will also find a profile, financials and a stock chart for each company listed. There is a magnitude of opportunity, when you know what you are doing. Read and learn!

After this initial research, I am personally still not ready to invest yet and will continue to research and do my homework. I know that there are deals to be done, but there will always be deals to be done in the future too. So, I won’t rush into anything, neither will I miss out. My money is valuable to me and before I part with my money, I also need to consider investing my money into other sectors, such as technology, manufacturing or healthcare. All these sectors are cyclical, sometimes going up and sometimes on a downward trend.

Your thoughts on this will really benefit me and other readers. Maybe you can help me understand what makes a good company to invest in and I welcome your thoughts on this. Some people make money, some people loose money. Should I keep my money in my pocket?

Sources:

  1. Crux Investor https://cruxinvestor.com/about-us/index.php
  2. London Stock Exchange https://www.londonstockexchange.com/home/homepage.htm
  3. Serabi Gold https://www.serabigold.com/
  4. Pan African Resources https://www.panafricanresources.com/
  5. World Gold Council https://www.gold.org/ and https://www.gold.org/goldhub/data/production-costs  
  6. Mining Weekly https://www.miningweekly.com/page/latest-news
  7. Wealth Simple https://www.wealthsimple.com/en-us/learn/esg-investing
  8. Gold  https://www.gold.co.uk/info/gold-market/
  9. http://solutions.refinitiv.com/MetalsResearch

Company page: www.cruxinvestor.com

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

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

A photo of a pile of 24k gold bars.