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.

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.

Scared About Investing? Read this.

More Of The Upside, Less Of The Down.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

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/

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 map of Regulus Resources' assets including the Antakori Project.