Serabi Gold (LSE: SRB) – Ready or Not At All, So Close Enough to Taste It (Transcript)

Interview with Michael Hodgson, CEO of Serabi Gold (LSE:SRB, TSX:SBI).

Off the back of yesterday’s press release, Mike spoke to us to give us a bit more colour on the details about the Public Hearing and the results of the first months test on the new ore sorter.

Interview highlights:

  • 1:30 – Public Hearing: A Positive Outcome
  • 3:43 – Ore Sorter: How Does it Work?
  • 9:56 – Focus for 2020: Exploration, Drilling and Building Value

Click here to watch the interview.

Matthew Gordon: Good. We saw the press release this morning, thought we’d try and catch you, and it sounds like we caught you at a good time, you’re off to Brazil tomorrow. So, why don’t we talk about the public hearing first of all which you told us about last time we spoke, but it seems to have gone well?

Mike Hodgson: Yes, yeah, I mean, you don’t get a definitive answer in the actual public hearing itself but you obviously… it could go very wrong on the day, so I mean if you have a positive public hearing in terms of like, everyone sits down and listens and all the stakeholders have the conversations and are all heard over 6-hours and there’s no… you know, it’s all done in a cordial manner, which is exactly what happened, you can’t have anything more.

So what we actually have there. It’s chaired by the State Environment Agency, called SEMAS, and they chaired it and all the various stakeholders had their say and we had pretty much overwhelming support, which was great. So they will now go away and digest all of those comments, people’s concerns, people’s wishes, people’s wants, and they will then make a recommendation to a governing body which is called KOHIMA. They’re the guys that actually, ultimately, either ratify it and take it to the board. So they’ll listen to all of the, as I say, all the comments and concerns and they’ll come back, hopefully, with an LP for us, we hope within the next sort of six to eight weeks. That’ll be a great result, we’ll be delighted to get it done so quickly.

Okay, it’s slipped a bit compared to what we hoped, but you’ll remember we had to live through all of those tailings dam problems of 2019 with Brumadinho and how that affected everybody in the mining industry in Brazil. We’ll obviously get the EIA resubmitted and the public hearing still early in 2020 and seemingly gone through in such a positive climate in a way. Yeah, I think we did a really… we’re very pleased. Very pleased.

Matthew Gordon: Well I guess you had the benefit of obviously Palito, existing business, running without any issues and you obviously had the support of the local community from that, so that all helps. And I think people mustn’t underestimate the importance of this, and we’ve certainly spoken to a few companies in the last couple of weeks who are suffering from not being able to get through the process, as it were.

Let’s talk about the ore sorter, because I’ve watched the video which kind of explains it all to me and we’ll put the link up above here now so people can go to that. Can you tell us the impact? You’ve been running it for the best part of a month and it seems to be delivering quite well. I’m looking at some numbers here, so you fed in 1,266 tonnes and you’ve identified 1,076 tonnes of waste, so that’s significant.

Mike Hodgson: Those numbers aren’t really terribly indicative. I put them in there because obviously we switched it on just over a month ago and we’ve been putting through some pretty miniscule tonnages, and we’re just playing around with it really, trying to find the sweet spot. And we’re using different types of ore. Some of the ore is actually sort of more massive sulphide ore. So really, I put those numbers in there to show people, hey, you know, it was a pile of rubbish, basically, sub-economic, very uneconomic material.

We passed it through the ore sorter and we just pulled out 200t at, like, 7g/t and the rest of it is a big pile of waste, and that just shows what this thing can do. And the video shows it, that it’s going in, you know, it’s crushed material which is 80% waste rock and if you look at underground face, underground, if you just eyeball that you can see, well hello, 80% of that face there is waste and 20% of it is a band of ore. That’s exactly what the ore sorter does. When that thing’s all been crushed it can actually eliminate all that waste and just scavenge out that sort of high-grade band of the sulphides where the Gold sits, and that’s what it does.

So I think we can see straight away it’s a very… it’s great at just scavenging out the ore out of the waste. And we won’t put our best material through it because it’s not an exact science, there are always going to be losses. Like, you will get ore going into the waste system and you will get waste going into the ore system, but I think the best way of describing it is, it is a waste remover. That’s what it is, it’s a waste remover and it’s an ore scavenger.

So we are only really using it at the moment and will be only using it until we’ve got this absolutely nailed, we’ll only be using it on our lower grade ore development, which is where we’re just driving along the belt in its most diluted materials, that’s the material with all the waste rock in, and it’s great for just recovering the ore out of that material and not having to pass all that stuff through the process pond which up until now had been completely constipating our process plans with this material.

So if we get rid of that, first of all we save ourselves, just by getting rid of that material and going for 500 tonnes a day at 7g/t, 400t per day at, say, 9g/t, you’re going to save yourself about USD$1M a year at cost which means the payback on this machine is about 18 months. But, more importantly, what it will do is it will liberate 100t a day of free space, which we can then use again to add more high grade or make our little process plant produce, instead of 40,000 ounces, which it can do today, the same plant with the same size and through-put can do 50,000 ounces. That’s the beauty.

Matthew Gordon: That’s truly remarkable. But it doesn’t actually identify Gold per se, does it? Explain to people what it’s actually doing? They can watch it in the video but I thought it was interesting to…

Mike Hodgson: Very, very important, the distinction. When you look at that video you see that yellow shiny stuff, people I know would be very excited if that was a band of Gold. It’s not. That is a band of sulphides, mostly charcoal pyrites which is a copper sulphide and pyrites which is an iron sulphide. And all of our Gold is very fine-grained contained within those sulphides. So, our ore sorter has two metals that actually split differentiating between ore and waste. What you’re always after with any type of ore sorting, whether it be diamonds or, as we’re doing, Gold, or whatever, you need contra between your ore and your waste, dark contrast. So it won’t work terribly well on a disseminated ore body? On an ore body like ours, which is very sharp, it will. So, what it’s actually doing, you crush it down to about a quarter of an inch, half an inch, so you can see there, an inch to half an inch, and you pass it through either a colour sorter or an x-ray sorter. So, let’s take the colour sorter first. In our case as you’re dealing with video, pink-based and the rest is ore. So you can just simply say, right then, I want to collect anything that’s not pink and it will just literally identify any stone that’s not pink and throw it off on to different belts as you saw in the video and the pink, the granite, will just fall off the edge as waste. Alternatively, you can sort on atomic density which is where you use the x-ray sorter, so it’s a piece of equipment not dissimilar to what we have at airports, you pass through it, and it’s actually penetrating every stone on 1mm centres, so it’s hugely detailed. And there’s a 3D sample so every stone gets analysed for a percentage or its atomic density and, of course, the granite rocks are much less dense than the sulphides and the ore rocks so, again, there’s a big contrast in density between what is the ore and what is the granite. So, again, we can sort on x-ray as well. And, if we really want, we can’t do it at the same time but we can – we haven’t tried that yet – but what we can do, we can sort once on, say, density, save the pile, and then you can pass the pile again and sort on colour. So, the permutations are endless and we’re just at the beginning of this journey really. But we’ve just simply by sorting on x-ray. It seems to be brilliantly separating the waste and putting some more add to the waste. The closing shot of the video you see that little pile and the big pile. We pulled that little pile. That’s now a big pile and before it was just lost in that big pile.

Matthew Gordon: It’s amazing. We were talking to a lot of companies about bringing ore sorters in to improve their productivity and throughput. As you say, the savings are, or can be, immense. You had a great year last year in terms of the share price. Obviously, shareholders, the share register must be quite pleased with your performance. I know you’re excited obviously about the ore sorter here but you’re obviously more excited about bringing Coringa into production. You’re off to Brazil tomorrow you tell me, before we started the call. What are you going to do?

Mike Hodgson: Well, we’re closing in on our sort of three-year, we’re doing, we’re updating our mine plans and our resource estimations. So that’s basically what I’m going down there to actually sort of oversee, have a good look at that. We’ve got some exciting drilling going on at Sao Chico. I just to make sure we can as much of those results into this resource estimate we’ve just done There will be an update coming out too some very couple of intersections on the further step outs yet. That’s not probably get the results on, quite, even the official results, but certainly it’s looking very good. We’ve got some very nice-looking introspection, visual at this moment in time so I’m going to be looking at all of that.

Coringa, a year, well that’s obviously going on very well. We’re, as you know, we talked about this last time, we have Greenstone the convertible loan note coming in at the end of next month, and that will, of course, be the catalyst to us to start work at Coringa, start on the decline and getting on the ground. And, again, the exciting thing about that is getting underground, getting the bulk sample done or getting that earth moving, see how that responds to ore sorting as well. So, I’m completely sold on the whole thing. I mean I must admit when it was all, when we all talked about it, it was about two years ago the scary thing was it basically going to amount to USD$2M on something like this was you know… Well, I don’t want it just to be an ethical success. We really hope it works in earnest. I’m completely sold. I think it’s a paradigm shift in this part of the world with all of its sulphite hosted Gold deposits. It’s going to be terrific.

Matthew Gordon: I think that’s what the shareholders bought into last year when the share price was moving rapidly up having been stagnant for so long. A couple of million bucks and a payback of, as you said, less than a couple of years, 18 months to 24 months. Fantastic. But, also the ability to double your production and get up towards that wonderful 100,000 ounce a year number it has got to be in the crosshairs for you. I mean Coringa could get you up to 80,000 and with your exploration at Sao Chico you’ve got to be aiming higher, haven’t you?

Mike Hodgson: Yes definitely, I think the ease of mining at Sao Chico ore body, that’s why we put a lot of effort on exploration now. We obviously get a bigger bang for our buck with our exploration work that we do there. If we do get a bit of a tiger by the tail there and, at the same time, the space that we’re liberating by cleaning up the Palito ore creates more space to put through more Sao Chico ore, but we’re not dismissing the possibility of being able to sort the Sao Chico ore as well. It might be a different way of doing it, but we are beginning to get some pretty good results on that. So, it’s three deposits. Coringa, Sao Chico and Palito as being sortable in the end. We’re going to squeeze, I was always saying, my comment there, low-grades and tonnes cost, we’re always going to try and get the grade up as much as possible and not just chase scale but chase quality so we can actually get to, you know, 100,000 ounces with mining as high a grade as possible so we don’t actually have the enormous through points that a lot of 100,000 ounce producers have to have to get that level of production. That’s the name of the game.

Matthew Gordon: And that’s the focus for this year or, have you got more surprises on the horizon?

Mike Hodgson: I think if we get a nice big resource increase at Sao Chico and we get successful or we get on the ground at Coringa and we bring back a bulk sample and that works very well with the ore sorter and Palito’s achieving its 45,000oz, I’d be very happy with that outcome.

Matthew Gordon: Very good. Thanks very much. I appreciate you taking our call with regard to this morning’s press release. We were keen to speak to you because it was one of the stories, success stories, of last year, certainly in terms of share price, which is the name of the game after all. So, we’re kind of keen to see how you get on this year and see if you can repeat that success. Stay in touch.

Mike Hodgson: I will Matthew. 

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

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

Pan African Resources (LSE: PAF) – Be-Be-Beating Hard Times, That is my Theme (Transcript)

Gold ore

Interview with Cobus Loots, CEO of Pan African Resources (LSE: PAF).

These guys get things done. Mining is never easy, mining in South Africa is far from easy, but the management team at gold producer, Pan African Resources, keep finding a way to get things done and are consistently hitting targets. Pan African is well on its way to becoming a mid-tier gold producer targeting 185,000oz per annum this year. Loots ran us through the highs and lows of the last 6 months, including the recently released operational update.

Pan African Resources has a share price of GB£0.125 and a market cap of GB£278M. It is listed on the LSE.

The key highlights from the update?

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

We like the tailings slant on the business. Green is very fashionable right now. 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 is now mining more economically due to a strategy change: 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 existing infrastructure, Pan African 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 recently released its first dividends for years. Loot states the company was recently one of the highest yielding gold dividend shares in the world. Loots states that he wants to get back there. 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.

Interview highlights:

  • 1:34 – Operational Update: Overview of Performance Results
  • 2:45 – Producing as Expected? A Run Through the Projects
  • 8:27 – AISC and Debt: What is the Current Position and What’s to Come?
  • 9:39 – Dividends: Keeping Them Going
  • 12:40 – Troubles in Jurisdiction and Community Issues: How Will They Ensure a Smooth Run of Operations?
  • 16:14 – What Should We Look Forward to from Pan African Resources?

Watch the interview here.

Matthew Gordon: Happy New Year. I haven’t spoken to you since before Christmas, so how are you?

Cobus Loots: Thanks, Matthew. We’re good. We’ve been busy as you might have seen from the operational update.

Matthew Gordon: We have, that’s why we called you. It seems like you have had a good last 6-months. You are on target to hit 185,000oz; that puts you very much in the mid-cap territory for sure. Are you pleased with your performance?

Cobus Loots:  Yes. We believe that, certainly the performance for the first 6-months provides a solid base for us to have a very good financial year. So Elikhulu performed very well, so we produced almost 30,000oz. We are well-positioned now actually for the next 6-months to increase that to go to almost 65,000oz for the full year so that is a great performance. Barberton was down slightly, mostly as a result of underground. But we have more flexibility now so we expect a much better 6-months, going forward from Barberton. And then also, and what I think is very positive, the work that we have done in the Evander 8 Shaft pillar. This project has gone from being a liability to actually now being poised to generate attractive cash flows going forward for the next 3-years.

Matthew Gordon: Okay. If you don’t mind, can we just break down that 185,000oz that you are going to be producing. You’ve got your existing Barberton and Elikhulu, both on the tailings and the mining front, and they are going as planned? The numbers are as targeted, first of all?

Cobus Loots: Well yes.Let’s start with Elikhulu first of all which we started last year: it’s a world class project. It is USD$130M that we put into the ground. It retreats old historic mining tailings, and it has a life of 12-years at present. And it is producing at an All In Sustaining Cost of USD$650 per oz or below. I think what’s more is that we are cleaning up legacy liabilities so it ticks the box in terms of ESG, looking after the environment, etc. So it’s a great project. It’s incredibly safe. We don’t have as many employees as what we would have had underground. So, we are very happy with the performance at Elikhulu, and as I said, we expect Elikhulu to do even better over the next 6-months.

And then the Barberton complex, which is also a world class tailings business, the BTRP, we do have about 20,000oz from the BTRP at Barberton and then 80,000oz at underground. So that gives us another 100,000oz per year, from Barberton. And then as I said, the Pillar, which is a project that we commissioned at the moment at Evander, that will give us 20,000oz which then actually becomes 30,000oz and more in the years ahead.

Matthew Gordon: Okay. And you actually refer to that as a former liability. Why was that?

Cobus Loots:  We curtailed operations at 8 Shaft, so we were mining 24 level, which was very deep. With a lot of infrastructure, a lot of logistics, a huge number of employees. So we curtailed that business about 2 years ago. We actually shut it down. And then the sort of question arose: what do we do with the remaining resource? We could have quite simply terminated operations at 8 Shaft, and that would have been the end. Instead, we said, let’s have a look at this Pillar project, let’s see what sort of Gold we can get out and over what sort of timeframe and at what margin, importantly. And that’s how the 8 Shaft pillar project has happened.

Matthew Gordon: Right. So basically, it was costing you a lot of money to get Gold out of the ground. It was becoming less and less profitable, having sunk a lot of money into the ground there as well. So you are now mining more economically as a result. That’s the point of what you have done?

Cobus Loots: Well, we are ceasing operations at the bottom levels which are very expensive and we are actually starting mining right at the shaft. So we have guided, we have anticipated that the all in sustaining costs of this Pillar project to be below USD$1000, which is very attractive. And that’s in-line with the rest of our operations.

Matthew Gordon: And Cobus, can I just ask you about Egoli, because you have obviously talked about the MFS, the mine Feasibility Study has been finalised now. Where are you at with that? What should we be excited about?

Cobus Loots: Yes. It has been a very interesting project from our perspective, as you said, the Mining Feasibility Study has been done. We are actually getting the study independently vetted by a third party and then they are expanding it to a full Feasibility Study, the results of which will be available pretty much at the same time as our interim financial results.

Matthew Gordon: Right.

Cobus Loots: And yes, circa 90,000oz per year, initially life of mine 9-years but if we model for the resources, it’s anywhere from 15 to 20-years.  At a fairly limited capital number for a project of this nature because of the fact that you are utilising existing infrastructure mostly: there is a processing plant, it’s operational on surface, we have the vertical shaft that’s all done. There are turns, certainly, currently, even a conservative Gold price to be attractive. So I think, you know, watch this space in terms of Egoli and our next steps when we release our interim results.

Matthew Gordon: Okay, when does that actually…how does that ramp up? How quickly does that ramp up?

Cobus Loots: You know, we haven’t yet pushed the button on development. The key is to finalise funding. And we what we have said to shareholders, we will not do the funding in any way that is dilutive. So we are looking at potentially bring in a stream or an equity investor of sorts. Certainly, the project has dig capacity in our view also. Once we are happy with the Feasibility Study and the fact that we can manage the risks, and it is a project that we need to be doing, from a pipeline perspective, we will finalise the funding and we will certainly add a time frame in terms of development.

Matthew Gordon: Okay. So the timing is not imminent? Because when I asked you earlier about, have you plans for adding debt for this year, you said, no. So, this is not a 2020 debt solution. You are saying that will come after that?

Cobus Loots: That’s right. The ramp-up period is three years, and most of the capital is spent in the later years. And if we potentially look to get in an equity investor, or some other form of finance, then that sort of takes off the burden, certainly from ourselves. But in terms of existing operations, certainly, we will be set in terms of debt, that holds true so we are not going to look to gear up the existing operations to fund a project like this. I think that it will stand on its own two feet.

Matthew Gordon: Okay. So you have been looking at the AISC and looking at ways of reducing it. I mean, I guess it is pretty standard: getting somewhere between USD$950 USD$1,000 is where you want to be, especially in today’s Gold price. So you are obviously throwing off a lot more cash, but you’ve also had to finance a lot of the development work with debt so what is the position on that at the moment?

Cobus Loots: Well, for 6-months to December, we have managed to de-gear the balance sheet and we have guided that in the year ahead, we should see a dramatic decrease in our gearing levels. You know, that’s a product of the Pillar coming into production, so we will be steadily instating the Pillar in March. It’s a product of Elikhulu performing at a steady state and the operations at Barberton performing. Certainly, what’s helping us also is the Gold price which is performing well in US dollars and even more so in South African Rand which is the currency that we look at.

Matthew Gordon: Yes. Okay. So, if I may just touch upon this here; a lot of mid cap and a lot of large companies, they tend to borrow money, then plough it back into the ground and kind of forget about shareholders. You issued your first dividend for a couple of years recently, what are your plans for keeping that going? Are you going to give back to long-holding shareholders in your company? Or is it the plan just to reinvest into the ground?

Cobus Loots: Well, if you look at our priorities in terms of how we apply capital, we need to continue to invest in our assets. But in the past, we have managed to do so, and then also pay an attractive dividend. Certainly, up to quite recently, we were one of the highest yielding Gold dividend shares in the world. And that’s where we’d like to get back to. And I think the operating environment in terms of the robustness of our assets and the performance, and then also the Gold price, should assist us in resuming even more attractive dividends in the future. Clearly, we have stalled some of the debt that we took on to fund Elikhulu, that’s still on the balance sheet, but as I said, we anticipate that number, in terms of the gearing levels, to come down quite dramatically in the year ahead.

Matthew Gordon: Any more plans for any more debt?

Cobus Loots: Well no, there’s no need for us to incur any more debt. Also, if you look at the sort of projects that we undertake now, one obviously looks at all the return metrics including internal rate of return, MPV etc, but payback is also very important for us, so how long does it take for us to get our money back and that’s where projects like Elikhulu where regionally, we were costing a payback of 4 years on a USD$130M odd, and at this Gold price, I actually expect the pay back to be sooner. So those are the sort of projects we like to do.

Matthew Gordon: Again, it’s just trying to understand the thinking of the management team here, because you’ve got options of paying it back in 4-years or paying it back quicker, paying dividends, you know, you have got the choice of what you do with that money. Some companies like to be completely debt-free as quickly as possible; others like to maintain some kind of leverage and utilise that spare cash elsewhere to develop and grow the business, where’s your head at?  

Cobus Loots: Well look, obviously, a mining company should not be over-geared and they should have a conservative level of debt. That’s really where I think we will end up in the next 6 months or so. It also doesn’t make sense for us to have no debt. In our view, it’s not efficient from a capital allocation perspective. We think that we can pay a significant, pretty much all of our debt in the next 12 to 18 months in resumed dividends so that one is not at the expense of the other.

Matthew Gordon: Okay. So dividends; they are still in the pipeline, your shareholders will still be receiving dividends as you continue to develop the business and grow the business – perfect. Can we talk about something else though? You did highlight them and I’ll give you credit for this; you don’t shirk or hide from this, you have talked about a couple of things: there have been some community issues which have affected productivity, and also, more recently, some power issues. I know mining is mining, and it is tough, but what has gone on there and will it reoccur?  

Cobus Loots: Yes, sure. I think we have demonstrated the ability to operate successfully in South Africa. We have had community unrest and that has affected, as you pointed out, the Barberton operations in the last 6 months. We had very serious power issues with ESCOM, our South African power and utilities, in December. On top of it, we also had probably the weakest December in terms of rainfall that I can recall for the last 20-years, so that will also have affected operations. So, you know, the bottom line is that one has to plan some level of disruption to your operations and you have to robust assets that can withstand these sorts of issues, and a management team that is proactive and can anticipate when they can and then deal accordingly.

So yes, South Africa gets quite a lot of bad press I think in terms of the operating environment, and a lot of it is justified, but as you said, most mining jurisdictions have their issues.

Matthew Gordon: They do, and like I say, I give you credit for not shirking away from it or ignoring it, but like I say, ESKOM for instance – what was the issue? Is it going to reoccur? Because I look at the, again, the information that you have provided, the prices have been going up and up, which affects your margins, but how do you engage with them? How do you have conversations that give you some sort of certainty about what the future looks like?

Cobus Loots: Well sure. ESKOM has been more of an issue at Evander, our underground business, and fortunately there, we have spare capacity so we can afford to turn off a mill for a couple of hours if there is what is termed, low-shedding: so where the grid is overloaded. So we do have that capacity but what I think also, the ESKOM situation is not going to become any easier overnight. We will continue to have power shortages in South Africa for at least the next 2-years. Barberton mines is less energy intensive so it is less affected. Elikhulu doesn’t use a lot of electricity so that is less affected. And fortunately, as I said, at Evander underground, we have some spare capacity so we can afford to reduce our underground consumption for a limited period. And recently, the Minister of Mines in South Africa has come out and said that they are in the process of deregulating the private power generation. At Evander, we are completing a Feasibility Study (FS) into our solar plant that will be able to look after pretty much all of Elikhulu during the daytime. And we expect that we will be able to, over time, expand that project also. So miners are being creative about finding solutions and I think that over the medium to longer-term, we will get those solutions implemented in a way that actually makes sense for shareholders.

Matthew Gordon: Interesting. You should talk to your neighbours over the road at Bushveld by the sounds of it.

Cobus Loots: Exactly.

Matthew Gordon: Okay. Well thanks for that update. It just sounds like business as usual for you. I appreciate you being quite direct about some of the issues that you miners face, but you are consistently hitting the numbers, or exceeding the numbers, despite those problems. So you always find a way. Do stay in touch and let us know how you get on. What are the next big things that we should be looking out for?

Cobus Loots: Well, we have our interim results now being released next week, on the 18th February and that will contain more detail on performance and what we expect for the remainder of the year. And yes, as I said, we are quite positive. We have laid a solid foundation, a good base to do well. So the Rand Gold price, is pretty much the highest it has ever been so that’s a good environment for us to operate in also.

Matthew Gordon: You see that continuing do you?

Cobus Loots: We sort of try focussing on those issues we can control, but it’s always nice to have tailwinds like the Gold price.

Matthew Gordon: Light a candle, for sure. Thanks again, speak real soon.

Cobus Loots: Thanks, Matthew. Speak soon.

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.

Gold ore

Rio2 (TSX-V: RIO) – Take Me to the River, Dip Me in the Water (Transcript)


Interview with Alex Black, President and CEO of Gold Developer, Rio2 Ltd (TSXV: RIO).

We like Black’s honesty. The managements track record is good. They have made investors money. They have a problem with water but has a work around. They had a large Feasibility Study plan, which has halved in size. Investors are concerned. We ask him why investors should trust him.

Rio2 is a Gold mine development company, focussed on taking its Fenix Gold Project in Chile to production, and its exploration platform in Peru.

Rio2 used to be the talk of the town, but things have changed in the last couple of years. Since hitting reaching CAD$2.85 at the end of March 2017, the share price has fallen to CAD$0.43 today. The market cap stands at c. CAD$78M. This decline will be more concerning given 2019’s strong gold performance.

Why has Rio2 struggled? Black explains the primary driver behind Rio2’s fall from grace is the expectations of investors. As a gold mine development company, Rio2 plans to methodically develop a fully-operational mine in the shortest possible timescale.

While Rio2’s management team has an impressive track record of developing gold mines, demonstrating technical prowess and adding value, what are they doing today to get Rio2 out of this slump? Strangely, given the current gold bull market, Rio2 has decided to reduce the scale of the gold project laid out in a PFS conducted by a different company in 2014. Why reduce scale? Black acknowledges it might take some of the “sexiness” away from the opportunity Rio2 presents, but is adamant it is the right way to go. An updated PFS was concluded in August 2019. The scale is down to get cash flowing. CAPEX has reduced from USD$400M to just over USD$100M. The strip ratio is lower and the IRR is slightly higher, but the AISC has increased, for now. This is a low-grade gold bulk tonnage operation, so surely scale is the most important element of this resource? Rio2 will seek to get the gold mine constructed as quickly as possible to create value, increase the production rate from an initial 100,000oz per annum to 200,000oz of gold per annum, and reward investors with returns.

Black is keen to explain how his team is different from any other junior: diverse with a variety of specialist roles. Black also touches on the environmental and political challenges of Chile as a gold mining jurisdiction, with a particular focus on the water licence/trucking situation. Is this interim solution effective? Black is attempting to concurrently apply for a permit while generating cash. This could mean investors won’t have to wait as long for value to be added. He then explains why an EIA should be very straightforward for Rio2 to complete in the next few months. Rio2 can’t afford to hang around. Investors will want to see results soon.

Rio2 has about US$13M in cash currently. They’ve already spent c. CA$40M on the project. Rio2 is going to be telling its gold story to the markets. What is going to make them stand out? Long-term Rio2 is M&A a possibility. Rio2 will continue to pursue strategic acquisitions with the intention to build a ‘multi-asset, multi-jurisdiction, precious metals company focussed in the Americas.’

Interview highlights:

1:48 – Company Overview

  • Share Price Decline: What Went Wrong?
  • Background and Business Plan: What Did They Set Out to Build?
  • Finding Value: Why, in a Gold Bull Market Situation, They Choose not to Expand?
  • Jurisdiction: Water, Power and Political Challenges
  • Money Spent on the Project to Date
  • Raising the Share Price: How Will They do it and Why Should You Invest?

Click here to watch the interview.

Matthew Gordon: Thanks for joining us today. You are going to tell us about Rio2.

Alex Black: Rio2 is a mine building company. We are mine developers. We have built two mines in the last ten years here in Peru: La Arena and Shahuindo, when we were the old Rio Alto. And here we are again with a flagship project in Chile, which is very much a buildable proposition. It’s a large Gold deposit, and obviously, in this video you will learn more about it.

Matthew Gordon: You are after Gold. Let’s start with the big stuff. Share price: you have been absolutely hammered since 2017, for a long time, you were the darling. I remember people talking about you a lot. But since then, it has been on a downward slope. What’s gone wrong?

Alex Black: I think, once we became a mine development company, people’s expectations changed. I’ve had a lot of people ask me the same question and I’d say to people, ‘Look, if you are looking for the quick 10%, 15%, 20% increment in share price, because of drill holes or drill results or exploration results, that’s not us. We are actually in the process of getting a project ready to turn into a mine. This happened, to a certain extent, this happened to us back in 2009, when we started Rio Alto; it took a lot of time to get traction in the market, for people to understand and believe the story. And then, once we did, everything took off from there. Rio Alto started off as a USD$12M company when we acquired La Arena, and on the take out with Taho Resources, we were USD$1.2Bn. So we did create value, we can create value and will create value in this company.

Matthew Gordon: I have seen the track record, it is pretty impressive. Those are big numbers but that’s history. We’ve got to talk about today. What did you start off thinking you were going to build? What was the business plan Day 1?

Alex Black: What we did when we acquired this asset, it had a pre-feasibility study which was put together in 2014. Typical Junior company pre-feasibility study. Big project. Big CAPEX. Big NPV, everything big. Why? Because they were never going to build it. They were looking to flip it and it never happened. So we looked at the asset and we said, there’s some analogies here between what we have seen, both at La Arena and Shahuindo, which we both operated, built   here in Peru. And we said, look, the way we started those two projects was to start small and incrementally build up, and we created a lot of value doing that.

So, going from a USD$400m CAPEX in the original pre-feasibility study done in 2014, to our CAPEX today which is about USD$110 – 115m is a big change, but it is completely doable now because of that gearing down of that particular project. So with La Arena and Shahuindo, we geared down right at the beginning. We had the opportunity to build some pretty reasonable sized projects, which they eventually got to, but we started small and we are going to do exactly the same.

Matthew Gordon: It was another management team that had done this PFS in 2014?

Alex Black: Yes. Let me give you a quick overview of the story: Atacama Pacific discovered this asset in 2010. It was a geological discovery. Albrecht Schneider and Karl Hansen, who were the two principals of Atacama Pacific, they drilled this thing out and low and behold -bang! They hit pay dirt and cobbled together a reasonable sized resource. And the problem they had, because they were exploration geologists, they just didn’t have the ability to then take it that step further. And that’s part of the issue with the market these days; there are a lot of the companies out there with some good geologists, but at some point, they need to step aside and let a mining development team come in and take the project forward, and the company forward, after they have done it because there are too many disasters of people who just don’t know what they are doing in this industry. So in our case, we identified this opportunity. We thought this was right down our alley, being a Gold Oxide heap leach project, and we acquired it and then convinced them that they should be doing a deal with us.

Matthew Gordon: So the previous exploration team came up with a very large Capex number to build a very large scale mine. You then came in and said let’s start smaller, and get some cash flowing, and then we can build it out from there. So this is more like a Phase 1?

Alex Black: Exactly. We try not to call it a starter project, but essentially it is; it is a starter view of the project. And I think that is what not has translated through to the market. The market has gone – ‘oh shit, you know, you’ve got 5m oz of Gold, but you are going to build this really tiny project. Why are you doing that? And so, once again, typically, a Junior company would drill this thing, keep drilling it. We’ve got 1.4m oz of inferred resources here that we could pull a drill rig up to tomorrow, start drilling and convert most of that to indicated. But why would we do that? We’ve already got 5m oz before we even get to that point. So, we are all about building mines and that will translate to value down the track.

Matthew Gordon: It’s one thing saying the market doesn’t understand, but the reality is that that is your fault; you haven’t explained it properly.

Alex Black: What I say to the market, we started off with a reasonable valuation when we did the Atacama transaction. We then ran into this bad market. We raised about USD$7M back in February 2019. We had to put money together because we had to advance the project so that was done very cheaply. What can you do? You have got to go with the market. The market says that you are worth USD$0.30 c, at the time, or whatever it was. And we took the money. And then later on, in August 2019, we did another financing. This time it was a USD$25M financing. That financing was led by Eric Sprott, and a whole bunch of people came into that financing with Eric. When I say a whole bunch of people, people that I don’t even know, they are mainly retail followers of him. So they are the people that don’t understand what they are getting into. They follow Eric and Eric typically gets into stories that are exploration stories, putting out drill holes and things like that. We are not one of those.

He bought us because he could see us as being a little bit different to those other stories that he has been into. So the crowd that follows him watches that and goes, where’s all the juice here? Where’s all the sexiness here? All the sexiness happened back when this thing was discovered, now we’re going to build it.  As you probably know, in the lifecycle of a development company, this is the quiet time because here we go, leading ourselves into the construction phase of the project.

Matthew Gordon: Let’s go through some of the numbers: so you have taken the PFS and said ‘we are going to create a Feasibility Study, we are going to reduce the scale of this project, just to get things going’. So you have managed to lower things like the Capex down to, from whatever it is – down from $400M, strip ratio is lower; the IRR is slightly higher. The AISC has gone up. Because you haven’t got the scale there. This is a low grade, bulk tonnage operation.

Alex Black: Well, there are three peaks there. 1, 2 ,3. And basically, we’ll be mining all three of those. This is an extinct volcano. And you can see, hopefully you can see that photo clearly, but what I see here is terrain that is very accessible, and everything outcrops at surface so we are just knocking the tops of those hills off. It’s a beautiful thing and it’s very simple.

Matthew Gordon: Let’s answer the question the market is asking you, which is in a Gold bull market; prices are USD$1,500, your AISC is about $1,000, so there’s money to be made; surely you can go out and raise capital? You can put it back at the original PFS levels can’t you?

Alex Black: I think we can get the money to build this asset. The good thing is, we raised USD$25m in August. That money will last us all the way through, and we are going to make it last us all the way through to EIA approval. We are about to file our EIA in the next few weeks. And then we are anticipating approval about 12 months after that. Once we have got that, we will be in a position to look at raising a lot more money and obviously, taking a lot of the risk out of… any development project is getting the EIA.

Matthew Gordon: But the question was different; the question was, in a gold Bull market, USD$1,500 or so, you are making USD$500 per oz, you are still going with a smaller project – why?

Alex Black: Because we are a USD$70M valued company. If we were a USD$500M company, maybe we would go harder at this. But one of the key constraints we are dealing with here in Chile is water. Let me just clarify this because it is not as though there is a lack of water, there is plenty of water. We are right near to the Maricunga Salar. There is no mining going on in this district, right?  There’s plenty of water rights in this district. The issue is: applying for water rights is one thing, but getting permanent water rights, which means you can pull water from the rights you have been given, is another thing. That’s the issue in Chile. That’s been generally created by a big demand for water, to the north of us in the Atacama Salar, which is way to the north of us. We have all the big guys: the Codelcos and the Rio Tintos and the BHPs with Escondida, Quebrada etc, etc. There has been a huge drain on water supplies in those areas. So the Government has gone, ‘whoa, let’s just slow down here’. But it is supply that is slowing down for the whole country, as far as water is concerned.

Matthew Gordon: That doesn’t answer the question: are you able to go and have conversations with institutions, funds or strategic partners, to give you more money to do the larger project, yes or no? Or are you telling me that because of the water constraints, people are not minded to fund you for the larger level project?

Alex Black: So, if we had the water rights, and we had permanent water rights for 80 litres per second, which would satisfy an 80 tonne per day mine, we would aim to try to build that. Once again, constrained by our balance sheet and the size of our company; we are a Junior company. So, what we have done is, we have elegantly, I think, we have looked at how we expedite the start up of this project without getting entwined in this water rights, water permitting issue, and that is to truck the water from Cupiapo to the project.

Now -140 kms. And we can do that. It raises our AISC to about USD$1,000 per oz, as you pointed out. That’s at the moment, I think we can show that we are working on bringing that AISC down as we get closer to and into production. But the idea is to bring enough water up. 20,000 tonnes a day requires about 2,000 tonnes of water. So it is about 10% of the mineral that you put on the pad, is required to be irrigated on the pads. So we need to bring up 2,000 tonnes a day of water from Cupiapo, and we can do that in trucks, in tankers. We have costed it out. It’s about USD$1.50 per tonne. That’s haulage costs, water costs, all in costs, to drive from Cupiapo to the project, 140 kms. Eminently doable.  A lot of people go, ‘How do you do that/ Why are you bringing water up in trucks?’ It’s like any other consumable. We are going to bring fuel up in trucks, we are going to bring explosives up in trucks, we are going to bring everything up in trucks.   There’s a major international road that goes from Cupiapo to Argentina, it’s between 15kms to 18 kms of the mine, of this peak. So the infrastructure is fantastic. So bringing up trucks is not an issue. And I want to say that because I’ve had a lot of people go, ‘The only push-back here is the water.’ And I have said, ‘Why?’ We have got a solution for water: 20,000 tonnes a day, 2,000 tonnes of water going to come up the road, every day, eminently doable. We have costed it, we have worked it out and it has been built up into our EIA. What is does do is speed up the EIA process because we are not pulling water up from the ground. So we are going to have an EIA approved, according to our consultants and according to all our officials that we have been talking to, the authorities, etc, we will have an EIA approved in about 12 months. And that’s running fast in Chile, right?

If you look at the latest EIA that was approved in Chile; it was for Salar es Norte: a big project that   Goldfield was, I don’t know, 150 kms to the north of us. They got that approved in 18 months but that involved tailings deposition, permitted water; very complex project in comparison to what we had. So that is what it is all about. And you are right; Gold is USD$1,500.  How long is it going to be USD$1,500? It could be more than USD$1,500, obviously.  The idea is to get to production as quickly as possible. That is what will create value for us and enable us to increase production from our initial rate of maybe 100,000oz per annum to plus 200,000oz per annum.

Matthew Gordon: I agree. I understand the model. You have been very clear about what your model is. Get into production as early as possible to generate cash. You have got to get into economic production.  I know water is the big issue that everyone wants to talk about – let’s just cover it and move on.  So you are trucking water up the mountain, I don’t know how many trucks that is and how many times a day?

Alex Black: I’ll tell you right away: very quickly – 25 trucks going up three times a day. So it is 75, essentially 75 trucks. We are going to have 25 trucks physically in the fleet that will be contracted out. And that means a truck, leaving Cupiapo, essentially, every 20 minutes.

Matthew Gordon: As an investor, all I’m concerned about is what does that add to the bottom line?  You have said it has. I’m more concerned and institutions will be concerned with this interim, this temporary solution is over strikes, or the towns and villages that you go through not liking 75 trucks going through each day, every day.

Alex Black: So we will be bringing the trucks up to the project and depositing the water, we are not going to be building a separate reservoir, we will be depositing the water in a major events pond. The major events pond is secondary to your leach pond that accumulates the pregnated cyanide that you are going to put through the plant. The major events pond will have the capacity of about 2 weeks of water, right. So we will make sure that before we start this project, we will fill this major events pond up and we will keep it filled up which means that we therefore have about 2-weeks of water. So if there is a weather event. Whether there is a labour event, or something like that, we believe that will be a way of mitigating those events.

Matthew Gordon: Well, 2 weeks of events. Sometimes these things can go on; whether it is natural events or people protesting or otherwise. And let’s face it, that happens in that part of the world a lot. So I appreciate that.

Alex Black: Good point but however, but during the latest event that happened in Chile, mining was not stopped anywhere in the country. And the road between Copiapo and where we are was never barricaded or anything like that, for any reason.

Matthew Gordon: Will you be applying for the full-permitted water license while this is going on?

Alex Black:  What we have guided is, we are looking at the longer-term water options, and there’s plenty of them. There are people building desalination projects.

At Copiapo and the coast.They are looking for clients. They are looking for end-users. The off-take we have with the water retreatment facility in Copiapo, owned by Aguas Chanar, we have the right to access up to 80 litres a second, which is for the bigger project, we are pulling 20 litres a second initially and putting them into trucks. We could build a pipeline from Aguas Chanar to the project, that’s still a possibility, we may do that in consortium with other people doing business in the area. Codelco have just mentioned that they are going to apply for exploration rights over the Maracunga Salar for Lithium. There’s going to be quite a lot of activity in that area. Having Codelco, the biggest mining company in the country, as our neighbour is going to be a good thing, I believe.  So there are options that are in the background, that we are working on and as we bring this thing into production, we will be able to say, we are in production now and in year 2, we are going to tap into this water X, whatever it is and we are going to increase production accordingly.. So that is how we see these things playing out, but I just don’t have those solutions –

Matthew Gordon: Today.

Alex Black: Right.

Matthew Gordon: Okay. So at that point, you are going to have to apply for an EIA permit, presumably?

Alex Black: Well, you do a modification.

And that’s the good thing about it; the modification of the EIAs take 6 to 8 months, typically. We have done quite a lot of research on this. Once you have got your first EIA, then it becomes a much easier process o modify and do things.  The good thing here is, and this is what investors need to understand: this is 100% Gold Oxide leap leach. There is no tailings, there is no complex sulphide transition zone, etc. This is going to be Gold Oxide heap leach. Which means no tailings dam. It’s only ever going to be a leach pad. So all the modifications we do to the EIA, will be relatively simple compared to this transitioning into a major sulphide project or a complex project with Copper and other things. There’s no Copper here. This is an anomaly in the Maracunga region: this is an anomaly because all the other Gold deposits in the Maracunga are associated with Copper, complex metallurgy, huge CAPEXand complexity.

Matthew Gordon: How are you getting power to site? Using diesel, or have you got another solution?

Alex Black: There’s a powerline within 15kms of this project. But instead of tying ourselves to the powerline, going through the negotiations, including that in the EIA, which would delay start up of this project, we said to ourselves, I’m going to start this with Gensan, which we did with La Arena, which we did with Shahuimindo, here in Peru. Once you tie yourselves into the grid, maybe in year 1 or 2 of production, Gensan then becomes back up power. So, we are going to start with Gensan and bring diesel up and power it that way. But there is a powerline 18 kms away.

Matthew Gordon: And how does this work? I’ve looked at similar projects elsewhere in the world, the people controlling the water, the people controlling the energy. They put their prices up at their discretion and that has a big impact on your costs. So what is it like in-country with regards to power, water, etc?

Alex Black: Well, in the case of water, we have got a fixed cost on water so there is no inflation built into the cost of the water we are pulling. We are actually using retreated sewage. Which is good from a leaching perspective, probably from other allergical perspectives it may not be, but for leaching it is okay, so we have got a fixed price. Energy:  Energy used to be a huge problem in Chile years ago and now it has stabilised and there is much more power on the grid. But typically, if oil prices go up, Gold prices move and other things – these are things we have to watch and build into our models as we go forward.

Matthew Gordon: How much money have you pumped into this project so far? You have talked to me about USD$7m and USD$25m, so far in cash, but how much did you pay?

Alex Black: Oh, we just did a share transaction; so we did a business combination with Atacama Pacific. We paid a premium – they were lucky because these days, nobody pays a premium.  It was all paper. We have raised in total so far, I’m just trying to do the maths, about CAN$40m, from the time we started Rio2, and here we are.

Matthew Gordon: How much cash are you sitting on today?

Alex Black: Today, about USD$13m.

Matthew Gordon: So you have spent about USD$40m, your market cap is about USD$75m – ish. You have about USD$13m in the bank.

Alex Black: And we are mixing currencies here. Let’s say it is CAN$15m or CAN$16m, sitting in the bank

Matthew Gordon: Sitting in the bank. Okay. So what’s going to happen this year that’s going to change the direction the share price is going in? Are you going to spend that on talking to the market more? What are you going to deliver?

Alex Black: Two things: we are going to be telling the story a lot more. We have just come out of the Christmas/New Year period. We came out with our updated PFS in August/September. We did two shows in Colorado. We went to New York last year. We are going to be going to Zurich this year, to the Denver forum in Zurich in April. We are going to be doing London, Frankfurt – you know, we are going to be marketing, telling people the same story I am telling you right now. So that’s one thing we will be doing. From a news perspective, we will be filing the EIA towards the end of the quarter. That’s a major milestone. We are also in the process of completing all our basic engineering for the project and that will be able to reveal how that looks, what tweaks we have done to the look of the project and traded off on OPEX, CAPEX to get to that point. We will start to talk to financiers about the project, once we get the compete overview of the project that is filed in the EIA, to present to financiers.  We will be doing that.

We also are refining our agreement with Aguas Chanar, which will be to our benefit and we will be announcing that at some point. We are also looking at the future of tying into the grid. We will be announcing things about that. That won’t be for the start-up of the project, but the longer-term future. And we will talk about the impacts to OPEX and future sustaining Capex that we will need to do those various things.

Matthew Gordon: That just sounds like every other story we are hearing every other week. I am trying to work out, what do I need to hear that says, this guy knows where this thing is going, alright? We look at people like Equinox right? They cleverly brough together three quite ordinary projects and did something quite big. You are in a district-wide, you have got Kinross behind you, who aren’t doing too much at the moment, and you are surrounded by some other big names. And you have got Eric Sprott involved in this thing, so why aren’t you offering up a bigger vision?

Alex Black: We have been talking about a bigger vision, and the bigger vision is to consolidate ourselves with other companies. We’ve got a management team that is second to none.

Matthew Gordon: You certainly have. So let’s do something with it.

Alex Black: And let me tell you, for the last three years, apart from doing this acquisition, for the last three years, we have been looking at lots of things. We are completely different to other Junior companies. We’ve got a full team here: geologists, financial people, mining people, environmental people, social people.  We can walk into a mine tomorrow and run it, anywhere, anywhere. And the other thing we come with is our Capital Markets experience, because I’ve been doing this for the last 20 years or so, front-end of companies, so we’ve got all the ingredients. But you think, there are people out there that, us plus them, that would look interesting, like what Equinox has done with Leagold, etc, let me tell you, it is just so difficult. So difficult. And there is entrenched management. Lack of management in various companies, skimming the game like we have. But you try and convince them that putting them together with is would make a lot of sense for the future of the company and also for shareholders, and it is like you might as well be talking to a rock.

Matthew Gordon: You’ve got Eric Sprott who is a big player. What does someone like him see in you? Is there something we need to know?

Alex Black: We continue to try to find deals. We may come up with something in the next short little while and everyone goes, wow, you’ve made the right move. All I’m saying is that until now, it has been difficult. With Eric, he is backing our management team, he has invested in a lot of things. At some point, those things have to perform. My reckoning is that they are either going to perform or he will potentially be a catalyst for consolidation, right?  You can have X number of investments but if they don’t form, it’s like, well why don’t I reduce the size of that pool to buy a factor of 2 or 3 and put things that have synergies or focusses that could be combined, and maybe that’s what he’s going to do. He hasn’t really said anything about that but I’m hoping he does that because at the end of the day, that’s what this business needs: consolidation.

You know what interests me as well? You know, here we are, we have been trying very hard to look at consolidation. Do you think anyone has come to me to say, why don’t you consolidate with us? Not one person has done that. That shows you the state of this business.

Matthew Gordon: At some point, as you say, it makes sense that he has got to pull the trigger because there are a lot of fundamentally good assets, there is some very average management and then there is some exceptional management.  I think your track record speaks for itself. What I’m hearing is: get into production early, earlier than you originally planned, and get some cash flowing.

Alex Black: Get into production that anyone else would do with this project. If this was in the hands of Kinross, they wouldn’t be doing what we are doing, right? If this was in the hands of anybody bigger, they wouldn’t be doing what we are doing. They would be looking at what impact can we make to 200,000+ oz per year, etc. So, we are doing something that nobody else would do with this particular project. But we did the same, and you’ve got to go back, and I keep harping and mentioning La Arena and Shahuindo, we did that there. We started those projects very small: La Arena was 10,000 tonnes a day to start with, focussed on high-grade, outcropping materials, which is exactly what we have here. And so, you know, we have that skillset to be able to do it and to have the vision of what it can become. What the market will eventually do, and this happened with Rio Alto, their market will eventually gel with that and go, yes, I want to be in this story.

The problem is that we are not in production yet. The closer we get to production, the more the interest and value will come into the story because everybody will doubt that we can do this, irrespective of the fact we have done it twice before, that’s just the nature of the market. People go,  ‘Oh, can you do this? You have never built a mine in Chile, have you?’ Etc, etc. It’s one of those things and I’m very pragmatic. I’ve been in the business 40 years.  I’ve been at the front end of the business for 20 years. I’m a technical guy, I’m a mining engineer. All I do, I’ve got a great team of people behind this wall here. Great team of people: second to none here in Latin America. All I do is   just focus on what we’ve got to do, let’s just show people that what we’ve been telling people for the last piece of time, we actually deliver on, and that’s all we can do – is deliver and execute on what we say.

Matthew Gordon: We shall see. Alex, thanks for telling us the story today.

Matthew Gordon: Alex, I appreciate your time, telling that story. It was great to get you to articulate what the plan is and why you’ve been doing it in this order. I can understand that now. I think you have got to get out there and tell the story in an articulate way to the market place, because your share price says; no one understands it. Eric Sprott coming on board – great new addition. I’ll look forward to seeing how your relationship with him develops.

Alex Black: Alright. And I just want to say that I like the way you ask questions; the tenor of the questions that you ask are really good. I think it really suits people who are maybe not so knowledgeable about mining, so you are doing a great job. Keep doing it. I look forward to following up.

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

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Energy Fuels (NYSE: UUUU) – Do you Hear What I Hear Ringing Through the Sky? (Transcript)

Interview with Mark Chalmers, President and CEO of Uranium producer, Energy Fuels (NYSE: UUUU).

It’s a bloodbath for Uranium equities at the moment. There is no news from Washington and most Uranium CEO’s have gone quiet. So we called Mark to see what he knows.

Interview highlights:

  • Continuous Silence: What is Happening in the Uranium Market?
  • Delays for the Decision and Options Available
  • US & Iran: How the Situation Affects the Uranium Market
  • The Mill: How Old is it, What is the Cost of Maintaining it and Could it be Decommissioned in the Future?

Watch the interview here.

Matthew Gordon: We are operating in a bit of a void here. I’m looking at share prices of most of the Uranium players, North American, are being hammered. What do you know that we don’t?

Mark Chalmers: Well, I think that we have is, we have investors that are just tired of waiting. They have been waiting; when we started this 232 process 2 years ago and it just drags on and on and on. Look, I share the frustrations of investors, but just remember; for every share sold, there is  one purchased, even though the price of these shares has gone down and we have all been hammered. Not just in the United States but even in some of the global equities in Canada have been hammered as well too. It certainly doesn’t make me feel good when I see these shares slipping but as you know, our company and Ur-Energy started this process 2 years ago, but we are still making progress. We are still making great progress. I think that the Government gets it. I think they get it that we have to have a nuclear fuel cycle in the United States.

Matthew Gordon: Why do you say that they are making great progress or that the Government understands?

Mark Chalmers: I think that when the tack changed from the 232 process, which is more of a  trade-focussed initiative, to national security when it comes to producing Uranium and nuclear products, you know, focussed on the military’s requirements, the Government’s requirements,  we got rid of, effectively, all opposition that we know of when we made that shift. The utilities are not openly fighting us. We’ve got good support from NEI.  We’ve had many, many meetings, I wouldn’t want to count them up. Hundreds and hundreds of meetings with people in the Administration, people in Congress.

Matthew Gordon: You are meeting these important people up on The Hill, what are they saying?

Mark Chalmers: You know, I think that we have gone through a huge education process on how dependant we are for import products in the United States and I think that when we talk to them, they are shocked at how dependant we have become. The government inventories have been there for decades, but they are finite and they are diminishing. As long as we are the largest consumer in the world, is that where you want to be, and not have the capabilities to replace those inventories because Uranium nuclear fuel products for the military, has to be unobligated products by the treaty, so it basically has to be by treaty, mined, converted and enriched in the United States of America.

Matthew Gordon: Pompeo and Trump; do they understand the scale of the problem?

Mark Chalmers: Look, I haven’t met with Pompeo, I haven’t met with Trump but I believe they both understand the magnitude of the problem. I think the people surrounding them understand the problem. I think they are understanding they need to make a decision quickly because of this imbalance of our ability to produce these very specialised products for the US Government.

Matthew Gordon: 12 months ago they had this same problem, today it is more imperative. Given the nature of some of the politics in America at the moment; we have this impeachment hearing going on, we have got Iran waivers being discussed, another 60 day extension, is it possible to make a decision in that environment?

Mark Chalmers: Look, we think so. It’s certainly been harder to get to the top of the pile. Since the original working group deliberations and the report they prepared, it’s been really hard. Every time we thought we were getting closer, it kept getting delayed. Certainly, with our discussions with people in Congress and those in Administration, we say, ‘Look, we are out of time. We need to tell our shareholders what the outcome is with this review. They need to understand, we are getting hammered with our share price and we also need to send a clear message to the world of Uranium mining and these nuclear fuel products; including the Russians, the Chinese, the Kazakhs, that the United States of America is not going out of business, in this area, at the front end.

Matthew Gordon: What are the options on the table now? We’ve been reading about Government-buying programs of US Uranium.

Mark Chalmers: Look, we try not to make it guesswork because it’s better for us to provide some guidance here. I mean, the first thing we want is, we want the Government to come out and say that the Government is supporting the nuclear fuel cycle in the United States: mining, conversion and enrichment, at a level that at least provides some critical mass so that we have the capabilities to produce our basic requirements, not all our products, but we can flex up if required. So the number one is; we want to be able to show our shareholders and tell the world, or have the Government tell the world the conclusions that they have made through  both the working group and the Section 232 investigations.  That’s number 1.  Number 2 – we want to see, or we hope to see immediate demand for Uranium mining. Uranium mining is the most challenged first step of the process. We would like to see the Government starting to buy Uranium: like now, this year -2020, and onwards to make sure that the Uranium miners can sell their product at fair prices. Fair prices. So that we can get some cashflow re-established. 

These companies that are not producing now – zero cashflow, it’s not a real good outcome; it’s not sustainable for a long period of time. And then lastly, the plan, the plan that they announce, we do realise that some of this, or a big chunk of this is going to have to go through appropriations. The expensive part of the plan is really the enrichment. Uranium mining and conversion already have a lot of the infrastructure in place on the lesser side of this re-establishment of the fuel cycle.  when you start talking about building new enrichment plants, being able to make everything from 495, 235, all the way up into 90s 235, that’s going to start costing billions. Now, the Government was already planning to re-establish enrichment without, in the early days, without looking at the Uranium and the conversion steps.

Matthew Gordon: Interesting. 20% of US energy is produced by nuclear fusion. There have been a few plants that have come to end of life, and a few due to come to end of life. The utilities have got oil, they have got gas, they have got renewables; nuclear is part of that, but for them to invest billions of dollars into building, or upgrading new plants, must be a big part of the conversations that they are having with the Government too. So, the miners are just a small part of this, but it’s got to be joined up thinking.

Mark Chalmers: Yes. And I think that there was a lot of logic when the President came up with his working group. Now granted, the working group’s main focus was just these first three steps of the fuel cycle but certainly, the Government, or the Trump administration is certainly committed to keeping its mini nuclear power plants operating, going forward, for obvious reasons. I think that the Government, like the DOD and the DOE, are also getting increasingly optimistic about the micro reactors and the small modular reactors. You know, this new Haleu fuel which is 20% 235, is also becoming a product that the Government thinks they will need for the SMRs particularly. And then, lastly, space travel – you know, that’s coming back on to the horizon. Now that is not probably a large consumer, and takes some time out, but again,  I’ve said this to you many times, it is not time for the United States to not be in this business.

Matthew Gordon: What is your view on this Iranian waiver issue at the moment. It’s a real political hotbed. The Europeans don’t want it. I know there’s a lot of discussions internally between Pompeo and Mnuchin about it. They are in disagreement about it. Is that a big distraction for you?

Mark Chalmers: I think it helps us because I think it shows how sensitive and inter-related this fuel market is outside of the United States. Even this morning I was hearing that Trump and Pompeo were wanting these waivers to go away. I also heard, and I heard this on the radio, Fox News, that the utilities, they don’t want it to go away because they have such a dependency already on the former Soviet Union, Russians, for fuelling their reactors. So it is all interconnected. People talk about, we’ve got all of these stockpiles, we’ve got all of this Uranium. We don’t need it for another 5 years, 10 years so obviously, the business couldn’t ever be healthy, and I know that’s not the case. But then, if you start looking at when you remove or let these waivers expire, and it starts to create issues where Russia cannot import into the United States, or cut back on that, a lot of these utilities are going to start running out of fuel, like within a year and that is sure going to shock people. What happened to all of those inventories? Where are all those products? You know, we thought we had 5 to 10 years of those products available: we don’t.

Matthew Gordon: How much inventory is available to US ultilities today? What are they sitting on? A year? Two years? Three years?

Mark Chalmers: Look, the utilities: I understand they want the lowest cost fuel to keep nuclear as competitive as they can. We know that fuel is such a small part of nuclear generation, but nuclear generation is struggling. But, you know, Uranium is in all these different shapes and forms and you’ve got to make sure you keep those in to balance with what your requirements are.  I think that this just highlights the fact that the United States doesn’t have the ability now, you know, URAMCO is fore-owned, in New Mexico, and they can do enrichment there up to 495. But we do not have US-owned capacity for enrichment. We do have US-owned capacity for conversion but that is shut down right now. I think it just highlights the fact that you do not want to be overly-dependant on all of these other countries and you do not want to be in a position where you have to fight with  one or both of your arms tied behind your back the Iranians and with the relationships they have with the Russians.

Matthew Gordon: Can we just talk about your mill, White Mesa. You know, ‘he who controls the mill, controls the district. So people are saying, hang on, the mill that he has got has a huge capacity which you can’t possibly fill. How do you maintain this mill? What’s the cost of keeping this thing going? At what point do you decommission something like that? Or is it a case of, you just replace the bits; its ongoing maintenance as you start processing stuff through the plant, you just constantly upgrade.

Mark Chalmers: I think the mill was originally built to operate for like 20 years and now it has been around for over 40 years. There have been a couple of campaigns of modernisation, you know, with control systems and automation. We have replaced a lot of the tankage, we’ve built new tailing cells. There’s been an evolution in technology over the years. So the mill, even though it’s an older facility, is in very good, excellent condition considering its age. So it is unique; as we know, it’s the only one that is operable, licensed, fully-staffed right now. It has the Vanadium circuit, hey, Vanadium is starting to get a bit of life in it. The price of Vanadium is starting to go up. Granted, when it was USD$30, dropped to 5, up to 6, we never thought that would look good but we are hoping that the price of Vanadium continues to go up here this next year or two and we can capitalise on a fairly substantial inventory of Vanadium that we have at the mill. But no, it’s in good shape, as I said, it’s basically, largely staffed. We did lay off a number of people in the last week or the week or so ago. We shut down the Vanadium recovery process because of prices. But it’s in good shape and we are ready to go.

Matthew Gordon: You’ve let some people go, where they permanent staff or temporary staff?

Mark Chalmers: Yes, most of the people that I let go were temporary staff. When we have to spool up the mill, we try to keep a core group of full-time employees and then we spool up with temporary people where possible. It’s our ultimate objective though to offer as many fulltime jobs as we can in the region.

Matthew Gordon:  We’re days away from a decision, but we have heard that before a few times before.

Mark Chalmers: I can assure you, I will let you know and the rest of the world and we have put a lot of our skin and sweat and money, we have worn out, I don’t know how many pairs of shoes I’ve worn out walking the halls of Congress and DC. But we’re excited it is finally going to happen and I know there are the nay-sayers who say it is never going to happen, they don’t think it’s going to happen, but I think we have done a fantastic job when you look at our company, because we have been doing most of the lifting, Energy Fuels has been doing most of the lifting, probably 75% of lifting here. I think it’s remarkable that we have got this thing elevated to where this is at this point in time.

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. We provide paid for consultancy services for Energy Fuels. 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.

Energy Fuels: I need your clothes, your boots, and your uranium mill.

A picture of the face of the Terminator, Arnold Schwarzenegger, who wears sunglasses and holds a gun up.

If, like me, you are a budding investor, you likely spend hours each night scouring the internet for the latest and best opportunities to make money. From economic revolutions instigated by futuristic technology, to trade embargos plummeting the prices of certain commodities, the world of investment is a complex minefield, which incites fear and excitement in equal measure.

In recent days, a commodity that has captured my focus is uranium; certain American economic news regarding it has intrigued me, in addition to the international surge of attention towards climate change. Following national news coverage in the last few weeks, it has been impossible not to notice seething commuters warring with Extinction Rebellion protestors. What could possibly cause smartly dressed commuters to devolve into a primitive mob? The answer is the increasingly intense climate change debate.

A colour photo of a crowd of colourfully dressed Extinction Rebellion protestors holding a large green banner stating: 'REBEL FOR LIFE.'

This event was one of many occurring in England’s capital in recent months. Additionally, Greta Thunberg’s damning climate change speeches have navigated themselves into the centre of international discourse. An individual wouldn’t be nominated for the Nobel Peace Prize unless their cause was especially relevant.   

One of the key components of the raging debate is nuclear energy. Nuclear-based electricity production avoids carbon dioxide and other greenhouse gas emissions. However, it has been suggested radioactive gas can cause health issues to workers and individuals from communities surrounding power plants. Furthermore, the disposal of nuclear waste is an even more controversial subject, and if one so much as utters the words ‘nuclear weapons’ they can expect a flurry of opinions to be launched at them more explosively than the warheads in question.

One of the primary materials involved in nuclear energy production and military use is uranium. In the wake of a tsunami striking a nuclear power station on the shores of Fukishima, Japan, the energy sector held a review on reactor designs and safety procedures. The resulting financial and psychological tidal wave had a detrimental effect on the industry, one which it is only slowly recovering from. As a consequence, despite offering vastly lower energy costs, uranium seems to have reached a political and environmental impasse and demand has plummeted. When combined with a lingering sense of distrust generated by incidents in Chernobyl, Ukraine (1986) and 3 Mile Island, U.S.A. (1979), and its association with nuclear proliferation throughout much of the 20th century, I was beginning to view uranium as a commodity too contentious to consider investing.

A colour photo of the dilapidated Ferris Wheel in Chernobyl's infamous abandoned playground.

However, after conducting my own research, I have concluded it is an area that can bring big returns to patient investors. The macro story is positive and encouraging. There are billions of USD being spent building new reactors across the world. New technologies mean small, more mobile reactors are being commissioned by countries who previously would have found themselves priced out. High profile individuals are vocal in their support, from Bill Gates to Elon Musk, and the vast scientific community adds additional endorsement to nuclear power being critical to the energy solution. Our current energy sources are not sufficient to cope with a rapidly increasing population and I feel nuclear power can be a green, affordable solution. 

…many of the world’s largest uranium mines are in care-and-maintenance mode.

The Uranium Cycle: I’ll be back.

Uranium is fundamental to the production of nuclear energy. However, current uranium spot prices remain far below what is economically viable to mine and produce ($23.90 as of 31/10/2019). Such market activity has depressed investment. Most of the (≈50) remaining uranium companies are struggling to stay afloat; many of the world’s largest uranium mines are in care-and-maintenance mode (1). These cold, hard facts lead prospective investors to one conclusion: why on earth would I want to invest in uranium? The answer remains the same as any other investment: it can make you money if you play your cards right.

I have studied numerous articles detailing different investment approaches to goods experiencing a low equity price. To me, the most attractive attitude towards uranium investment is the contrarian approach. After recognising where uranium is in its cycle, and the potential for an uptake in the future, this method seems prudent.

However, I can’t exactly go out and buy large quantities of uranium for myself; I wouldn’t want MI5 knocking on my door in the early hours of the morning. A wise investment will require choosing the right companies to invest in.

From an investor’s standpoint, there are 3 crucial elements a company requires to instil confidence in me, or any other investor. If any of these aspects are missing, I think the company is likely to falter and investment should be avoided. 

Investing in uranium: the secret recipe

The three ingredients are as follows:

  1. An experienced management team who have a proven track record for every process: mining, refinement and sale.
  2. Sufficient liquid assets to enable the company to survive until prices take an upturn.
  3. A genuine asset(s), not something purported to be an asset (such as a licence) that in reality is more restrictive to a company than beneficial.

Energy Fuels, the leading U.S. producer of uranium and potential producer of vanadium, has all three, but, perhaps most interestingly of all, it has an ace up its sleeve that is likely to be a real game-changer.

An Experienced Management Team

Uranium is an incredibly complicated commodity to work with. From permits, licences, safety, legislation, regulation, transportation to refinement there are numerous difficulties, not to mention the difficulty of mining itself. The sale of uranium is also far from straightforward, because the buyers are utility companies with long buying cycles and complex purchase criteria. If a management team has not already been through this process from start to finish, they are learning on the job with my money.

A colour photo of Energy Fuels CEO, Mark Chalmers.
Energy Fuels CEO, Mark Chalmers

Energy Fuels has a management team with an impressive résumé. Their CEO/President Mark Chalmers has been involved in the uranium industry since 1976. His vast experience would impart confidence to most investors. As a company, Energy Fuels has been operating since the 70s, and has nearly 40 years of experience mining and refining uranium. I find Energy Fuel’s established industry-related relationships and experience with uranium production/sales impressive.

Sufficient Cash

The brutal nature of the current market has created a tough environment for uranium companies. Murmurs from funds surround the need for price discovery: the spot price for uranium will need to start increasing before they will invest meaningful cash into companies again. It seems clear to me that utility companies have complete control of the timescale of any potential uranium price uptake. In the meantime, if a company lacks the cash to maintain their facilities, they will not be able to survive.

Handily, Energy Fuels has $40-45 million to see them through until uranium prices rise.  In a recent interview with Crux investor, Chalmers expressed a reason for investors to be hopeful of a price increase in the near future.  Energy Fuels and Ur-Energy are hopeful their petition to the United States Government under section 232 and the subsequent announcement of a 90-day Working Group may bear fruit.   

If the group’s report is favourable to the nuclear industry, it is possible President Trump could subsidise U.S. uranium companies via tax breaks and other federal financial boosts, thus allowing prices to rise and profit to be made for investors who climb aboard while prices are still low. However, despite Chalmers stating he would be “shocked” if the government doesn’t rule favourably towards the uranium sector, the judgement currently resides in a realm of definitive uncertainty; the group’s report may not be completed this year as other events take centre stage on the U.S. political platform.

Genuine Assets

A company’s assets are an excellent indicator of if my hard-earned cash will be worthily invested. Energy Fuels have a portfolio they regard as ‘truly unique.’ (2). They have ‘more production capacity, licensed mines and processing facilities, and in-ground uranium resources than any other U.S. producer.’ Energy Fuel’s 100% ownership of numerous promising mines across Arizona, Utah, New Mexico and Wyoming gives them an excellent list of valuable assets.

Furthermore, in an interview with Crux Investor at the WNA, Chalmers explained the versatility of Energy Fuels. The company tries to ‘diversify,’ to ‘keep a strong balance sheet’ and ‘protect shareholders.’(3) The quantity of projects being undertaken by Energy Fuels helps reduce the risk of investment, as if one goes horribly wrong, there are plenty of alternative options to steady the ship.

The diversity of Energy Fuels is further exemplified by their status as the largest U.S vanadium producer. Vanadium has a variety of uses in engineering and redox flow batteries to name but a few. They also provide ‘low-cost environmental cleanup and uranium recycling services, including potential involvement in the EPA clean-up of Cold-War-era uranium mines.’ Investors can find their risk reduced because the company is clearly not a one-trick pony. Energy Fuels is not completely reliant on uranium.

The Game-Changer

When first mined, Uranium isn’t functional for nuclear energy or military use; it needs to be enriched to ≈20% for power and ≈85% for military use. The enrichment process requires the mined uranium ore to be processed in a mill. Energy Fuels own the only ‘fully-licensed and operating conventional uranium mill in the United States.’ (4). This means in the event of a uranium price increase they are the only company ready to go into production immediately. It also means that any competitor will be restricted at their leisure; companies will have to pay Energy Fuels for use of their mill, or face expensive shipping expenses to mills in foreign countries. Energy Fuels will also have control of the timescale of other companies’ uranium production. Chalmers has positioned the company strongly with an undeniable leg-up on the competition.

A photo of three nuclear cooling towers in action against the backdrop of a clear blue sky and a woodland area.

An Option I Could Seriously Consider

Upon conclusion of my research into the world of uranium companies, I have reached the conclusion Energy Fuels would be a potentially sensible investment. I don’t think any other American uranium producer comes close when the management team, business model, cash and bonus mill of Energy Fuels places them in such a commanding position. In the near future, I am likely to invest. I feel my money would be much better served waiting to grow with the sleeping giant of uranium than comatose in a bank account with less interest generated than a taxidermist’s dating profile.

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. We provide paid for consultancy services for Energy Fuels. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

A picture of the face of the Terminator, Arnold Schwarzenegger, who wears sunglasses and holds a gun up.

The Next New Copper Producer in the United States : Excelsior Mining

  • TSE: MIN
  • Shares Outstanding: 238.66M
  • Share price CA$1.18 (15.01.2020)
  • Market Cap: CA$281.62M

Why invest in Copper?

Copper demand is growing. Its main use is electric wires and as we consume more electricity we will need more and more Copper. Total electricity consumption in projected to grow by 60% in the next 20 years.(1) Besides growing energy consumption, we need more Copper because renewables (solar & wind) are extremely Copper intensive. EV’s also require more copper than traditional combustion engine vehicles.

But the main story in Copper is the supply side. In the last commodity cycle the Copper industry spent over USD$100Bn exploring and has almost nothing to show for it. Permitting is becoming more and more challenging and the average time to get from discovery to production is now +15 years (2). The average grade has also been falling steadily from c. 1.65% in 90’s to c. 0.9% today (3). The Project pipeline is even worse. Way worse. For the pipeline to become economical, Copper prices have to rise. With current prices, supply will drop by 3%-4% pa.

Short-term recession will change things and push the crunch further, but according to Wood MacKenzie we will see a 10Mt deficit before 2030 (3). Advances in Technology will make it more economical to mine low grades, but 10 years is a short time. I don’t think we will see peak Copper, but I feel confident enough to predict a bull market in Copper in 20’s. And I want to position myself for that bull market.

The Asset: Gunnison Arizona

Gunnison is a wonderful asset. It’s not a Tier 1 asset size-wise (4,500 Mlbs proven Reserves & 5,000Mlbs Measured & Indicated Resources), but it has ridiculously low production costs and low capital intensity. Based on Excelsior’s Feasibility Study (FS) it has AISC of USD$1.23$/lb making it one of the lowest cost Copper producers globally. Gunnison has a unique geology that allows in-situ leaching (ISR/ ISL) as the mining method. ISR uses leach solution to extract Copper directly from the ground via wells. It’s basically pumping Copper solution from the ground using wells. ISR mines tend to have extremely low operational costs combined with low initial CAPEX. Those familiar with Uranium know that the cheapest production in the world is ISR production (4). ISR has also been successfully used to “mine” Copper in Arizona.

Excelsior [is] extremely cheap on paper.

The mine will be built in 3 Stages. In Stage 1, 2 and 3, Gunnison will produce 25Mlbs, 75Mlbs and 125Mlbs of Copper pa respectively. Stage 1 is fully funded and on schedule. Production starts at Q4/19.

Funding was a combination of new shares, a Royalty and a Copper Stream (majority). Excelsior didn’t need to raise any debt. CAPEX for Stage 2 will be $146M and for Stage 3 $230M. Gunnison has an NVP of USD$807M with an IRR of 40% and a life-of-mine (LOM) of +20 years. Copper companies often prefer to use $3/lbs sand 5% discount rate in their assumptions. Excelsior uses a way more reasonable $2.75/lbs as Copper price and a 7.5% discount rate.

For a company with a market cap of US$195M these are robust numbers and make Excelsior extremely cheap on paper. In fact, looking at the corporate presentation (5) you will notice that at full production the project will be generating more EBITDA pa. than Excelsior’s market cap.

From Stage 1 to Stage 3

Back in the real-world, project level feasibility numbers do not necessarily equate to company economics. Gunnison also has two Royalties and an off-take agreement that are not taken fully into account in the Feasibility Study (FS).

I think that Stage 1 will look like this:

Stage 1
Low CaseMid CaseHigh Case
Production (Mlbs)252525
Copper (Cu) Price @ $2,75$2,00$2,50$3,00
Cu Price to Triple Flag$0,50$0,63$0,75
Tripple Flag Stream16,5%16,5%16,5%
Revenue (USD / M)$43,81$54,77$65,72
Greenstone Royalty %3%3%3%
Altius Royalty %1,625%1,625%1,625%
AIS Costs ($1,23/lb LOM) Stage1$1,45$1,45$1,45
SG&A Total$8,7$8,7$8,7
Other Costs$2,0$2,0$2,0
Taxes under Trump @ 20%$0,0$0,0$1,7
Taxes under Democrats @ 40%$0,0$0,0$3,5
Net Income (Trump)-$12,2-$1,7$7,0
Net Income (Democrats)-$12,2-$1,7$5,2
OCF under Trump-$2,2$8,3$17,0
OCF under Democrats-$2,2$8,3$15,2

LOM AISC is $1.23/lbs but in Stage 1 AISC will be higher even though they would use high-grading. Numbers might not look great but for me the key is that even with extremely depressed Copper prices Gunnison will be generating positive operating cash flows (OCF) in Stage 1.

Based on the ramp up plan, Excelsior wants to move to stage 2 in 3 years. This will require $146M. Out of this sum Excelsior might be able to fund ⅓ internally. This means they need another $100M. This would probably be debt.

With 7.5% interest rate they should be able to start generating a meaningful OCF in Stage 2. With $2.75$/lbs, I think USD$45-$54M could be in reached (USD$35-$40M with $2.5/lbs).

Stage 3 follows 3 years after stage 2 and requires USD$230M in CAPEX. If Excelsior can fund USD$100-$150M of this out of cash flow and pay the rest with debt, in 2025-2027 Excelsior would have a debt load of USD$200M and USD$106-$130M in OCF (USD$75-$100M in net profit) with $3/lbs of Copper.

Stage 1 Stage 2 Stage 3
Year 1 2 3 4 5 6 What If” Scenarios
Production (Mlbs)252525757575125125125125
Copper Price$2,50$2,50$2,50$2,50$2,75$2,75$2,50$3,00$4,00$5,00
Triple Flag Stream16,5%16,5%16,5%5,8%5,8%5,8%3,5%3,5%3,5%3,5%
Revenue (USD / M)$54,77$54,77$54,77$179,41$197,36$197,36$304,30$365,16$486,88$608,59
Greenstone Royalty %3%3%3%3%3%3%3%3%3%3%
Altius Royalty %1,625%1,625%1,625%1,50%1,50%1,50%1,50%1,50%1,50%1,50%
AIS Costs ($1,23/lbs LOM)$1,45$1,45$1,45$1,35$1,35$1,35$1,20$1,20$1,20$1,20
SG&A Total$8,7$8,7$8,7$16,0$16,0$16,0$25,5$25,5$25,5$25,5
Other Costs$2,0$2,0$2,0$5,0$5,0$5,0$6,0$6,0$6,0$6,0
Net Income (Trump)-$1,7-$1,7-$1,7$21,3$35,0$35,0$55,3$101,8$194,8$287,8
Net Income (Democrats)-$1,7-$1,7-$1,7$16,0$26,2$26,2$41,5$76,3$146,1$215,8
OCF under Trump$8,3$8,3$8,3$40,3$54,0$54,0$85,3$131,8$224,8$317,8
OCF under Democrats$8,3$8,3$8,3$35,0$45,2$45,2$71,5$106,3$176,1$245,8

What impresses me with this asset is that we don’t need to see a Copper bull market for Gunnison to make sense. But let’s say, just to amuse ourselves, that we will have a Copper rally and Copper goes to $5/lbs. Excelsior could be making close to USD$300M in profit.

And this is the thing with resource sector. There will be bull markets followed by long bear market. Mining is hyper-cyclical sector. I’m willing to say that we will see $4-$5/lbs of Copper in 20’s and when that happens I will be selling while the investing herd will be stampeding to buy the deficit story.

Management Strategy

Excelsior’s management has proven that they can build a mine.

I say “I don’t know” way too often to sound smart. But when evaluating management teams in mining “I don’t know” is more often than not the truth. There are terrible management teams, cheaters, liars and lifestyle companies. There are also good people who are just incompetent. There are also superstars like Ross Beaty. And then there are a lot of ordinary management teams.

Excelsior’s management has proven that they can build a mine. They also have operational experience (although not directly related to Copper ISR). I feel confident enough to say that they can run the operations at Gunnison successfully. The fact that Greenstone Resources, Altius Minerals and Triple Flag are also backing the project also leads me to believe this.

But to be able to know whether or not they are the right people in the right place, I’d need to know what happens next. They will ramp up the production to >100Mlbs in the next few years and that will be the main focus but then what? Thing is that after reading through MD&A’s, annuals, presentations and after listening to every interview the CEO Stephen Twyerould has given (and that I was able to find 2012-2019) I can’t tell you what their strategy is.

This is a rant in part but…if Excelsior pays 100% of its income in dividends, investors will think the management is competent. But if they are thinking of making themselves into a midcap Copper company with multiple producing assets then investors need to know what they are thinking and the roadmap to get there. M&A, exploration, no dividends, dividends as a fixed % of their profits, or maybe they are thinking of acquiring some nickel assets to make themselves a diversified miner. I get that this lack of strategy is the modus operandi in mining, but this lack of clarity makes it difficult for investors to make intelligent investment decisions.

Does Excelsior have a great management team that can successfully execute a growth plan from a single asset junior to a midcap? I don’t see any evidence for that. Besides a super-low-cost producer usually has to acquire higher-cost projects which will change the economics of the whole company.

I have reservations about the chairman of the Board Mark Moribato – namely whether his focus and contribution to Excelsior is sufficient. (6)

Besides being involved with Excelsior, he runs a merchant bank called King & Bay West Management Corp (K&B) and is also Director, CEO, chairman etc in multiple mining (and one jet) companies.

“King & Bay West provides administrative, management, regulatory, accounting, legal, corporate development and corporate communications services to the Company.”

In 2018 Excelsior paid $532K to K&B for: (7)

Alderon Iron Ore Corp. (Morabito is chairman) paid $532K to K&B for: (8)

Canada Jetlines Ltd. (Morabito is chairman) paid $887K to K&B for: (9)

Voleo (Morabito is chairman) paid to K&B for: (10)

There’s nothing wrong with these kinds of arrangements. Example in Excelsior’s case the Corporate Secretary works for K&B and K&B charges Excelsior for these and other services provided (the same person also works as a Secretary at K&B, Corporate Secretary at Xineoh Technologies Inc. and as an assistant Secretary Corporate in Canada Jetlines and Alderon Iron).

But I think that these kind of setups raise questions and make it hard for an owner to judge if they serve the company, especially when it seems that every company that Morabito is involved in buy services from his company.

Voleo (Morabito is the Chairman) is also an interesting story. Morabito was the CEO of Logan Resources, a gold explorer in 2017. According to his 20 Jan 2017 Proactive interview “the downside risk in Logan, at the current share price of 10 cents Canadian, is almost nothing and the upside is somewhat unlimited” (11).

Alas like with so many explorers’ things didn’t work out, so in 2019 Logan closed a business combination with Voleo (12) and is now “The first and best social stock trading app for investment clubs”, already with negative equity and a loss making business.

He also seems to have use his buddy Peter Grandich to promote his companies. This occurred at Silver Quest Resources, Alderon Resource, Crosshair Exploration, Excelsior Mining Corp and Santa Fe Metals Corp.

Example: Ridgemont Iron Ore Corp granted “monthly fee of US$2,000 and will grant 200,000 incentive stock options to Grandich”. Again, Morabito was the guy signing the papers. (13)

After listening to many of his interviews, he seems like a smart guy. But having reviewed Morabito’s track record, my concern is in making sure that the decisions he makes are in the interests of the shareholders. When it is not, he needs to be held accountable.

CEO Stephen Twyerould “moved Reliance Mining from junior explorer to producer in 3 years (Market cap $5M to $100M)” (14)

This refers to Beta Hunt, now owned by RNC. Based on what I gather (and if I’m wrong please correct me), Reliance bought the property in 2003 for AUS$11.7M. Reliance was acquired by Consolidated Minerals for AUS$76.5M in 2005.(15 & 16) Maybe the market cap went to $100M, but I have a problem in the way this is presented. I’m good with AUS$76.5M (which back then was USD$57.5M). Just keep it at that. By saying $100M I believe they purposefully gave the wrong impression, and I also feel it was misleading to using “USD$” instead of “AUS$”.


This year is pivotal for the company and what I expect to see is heavy insider buying. This has not happened…

Top holders include Greenstone Resources (47.7%), Triple Flag (5.8%) and Altius Minerals (1.2%). I respect these companies and when they come in, they do heavy technical DD. The fact that these entities are involved is a vote of confidence.

Management owns 4.4% but from what I can see this is largely due to options. After going through the insider trades from 2011-today, it’s mainly just insiders exercising options and selling some shares in the open market (though I must give credit to Morabito for buying lots of stock during 2012-2014). This year is pivotal for the company and what I expect to see is heavy insider buying. That has not happened as you can see: (17)

In a 2012 interview, “A few minutes with the CEO” (18), Twyerould said, “I mean to get this project into production in 2015”. That didn’t happen. This is not a problem in and of itself. Mining is a tricky business.

My problem is that the management gave themselves a large amount of options during that time (2010-2012). These options had expiration dates from 18th December 2014 through 31st December 2015, with strike prices from CAD$0.5 to CAD$0.73. In 2013 Excelsior Mining announced that it “will re-price 5,147,333 incentive stock options issued to Directors, officers, employees and consultants of the Company. The options were originally granted between October 2010 and February 2012 at prices ranging from CAD$0.50 to CAD$0.73. The new exercise price for these options will be CAD$0.30 per share.”. (19) In 2014 Excelsior Mining “intends to extend the term of a total of 5,829,667 stock options (the “Options”), which are currently scheduled to expire on 18th December 2014, 5th May 2015, and 14th October 2015. The Options were issued with an original term of five years and the term will be extended such that their new expiry date is 31st December 2018.” (20)

In my opinion the management (CEO) sold a promise to their owners “mine in production in 2015” (18) and gave themselves options that basically payoff if they achieved the goal. They didn’t. For shareholders this means dilution and lower IRR. For the management this means 50% lower exercise price and four years extension for their options. I’d say their IRR stays the same.

Everything I have described above is way too common practice in mining and the things I have pointed out about Excelsior are mild compared to some, but no less excusable. Investors must pay attention to the detail and be vocal. If the Management Team acts to protect their own interests and not those of the shareholders, they must be called out. Or investors can vote the Board off, or vote with their feet and walk out.

Bottom line

I think there’s an extremely strong fundamental case for Copper. In 20’s we will see a much higher Copper price which should lead to rising equity prices for Copper companies. When in 20’s you ask? I don’t know. But I can position myself for the long-term. There might be a recession before we see a meaningful bull market in Copper and it might take time, but it will come.

 Excelsior Mining is a great way for investors to position themselves for the long wait.

Hence, I want to have a pure-play, low-cost, low-debt and long life-of-mine (LOM) asset which is located in a great jurisdiction. Gunnison, in my opinion, is an asset that meets my criteria and no matter how I play with Excel, it is on the cheap side. I’d also love to have a great top-notch management team. That is my current concern. So is the lack of vision and clear and understandable strategy for the future. But even though I have pointed out the short-comings of the management team, I don’t think that they are necessarily all bad either.

I’m concerned that they cannot articulate what they plan to do. An average Management team can ruin a great asset with a bad strategy and execution. Luckily it will only take the next 4-7 years for them to ramp up the production, and that is something I can wholeheartedly support.

All in all, I see Excelsior Mining as a great way for investors to position themselves for the long wait.

I own shares in Excelsior Mining.

  1. IEA Energy, World Energy Outlook 2018
  2. World Bank, From Commodity Discovery to Production 2016
  3. Wood Mackenzie, Global Copper long-term outlook Q1 2017
  4. WNA, In Situ Leach Mining. KazatomProm 1H19 hand out page 16 shows how the lowest quartile of production is ISR.
  6. Excelsior Mining 2019 Annual General Meeting, Information Circular
  7. Excelsior Mining, Annual Report 2018
  8. Alderon Iron Ore Corp., Annual Report 2018
  9. Canada Jetlines Ltd., Annual Report 2018
  10. Voleo Trading Systems Inc., Consolidated Financial Statements YE March 31, 2019
  14., Excelsior Mining, Corporate Presentation
  18. “A Few Minutes with a CEO” interview, 19 april 2012
  19., Excelsior Announces Stock Option Repricing October 31, 2013
  20., Excelsior Provides Marketing Update and Extends Stock Options August 7, 2014

Pan African Resources (AIM: PAF) – A Dividend Paying Gold Producer (Transcript)

Interview with Cobus Loots, CEO of Pan African Resources (AIM: PAF).

We don’t tend to like investing in Gold producers as they rarely perform for shareholders. But we like this one, a lot. The CEO is brutally and refreshingly honest. He spends lot of time pointing out the difficulties in mining and operating in South Africa.

However, they make it work. They have a long track record of producing Gold and paying dividends. Last year they suspended the dividend payments as their debt borrowing for the new plant was the focus, however, they are planning to pay a dividend (subject to shareholder vote in November). The Audit Results are out today. The numbers are extremely encouraging and show a tremendous growth across the company. Cobus Loots talks about how they have done it and what the growth targets are in the short term. We were impressed about the way they think about capital allocation. Investing in their assets, they want to repay the debt on balance sheet, paying a dividend and how to deliver growth.

They still have a lot to do but we think this team is rigorous in its planning and methodical is how it delivers its projects.

Interview Highlights:

  • Overview of the Company
  • Audit Report: Great News?
  • Safety & Why It is Important to Pan African Resources
  • Productivity & Production: What Numbers Are They Looking At? Can They Lower Their AISC?
  • Paying a Dividend: Why Now?
  • Mining in South Africa: Benefits and Risks
  • Company Financials and Share Price: What’s The Outlook?
  • Future Plans for The Company

Click here to watch the interview.

Matthew Gordon: I’m looking at your executive officer statement. We had a chance to quickly scan through this. Some great numbers on there, you must be very pleased.

Cobus Loots: We are quite pleased. And I think this was a great improvement on pretty much all fronts.

Matthew Gordon: Definitely. Give us a one-minute summary of the business for those new to the story to start with.

Cobus Loots: The company is Pan African Resources PLC. We’re a UK company, but with a South African base, with all of our operations currently in South Africa. We have two large gold mining complexes. The first being Barberton Mines. Barberton Mines has been going for almost 130 years. So, gold mining started in Barberton in 1886. We’ve made some major improvements in recent years at Barberton. So, we have the underground mine that we’ve been mining, and will continue to mine for quite some time. And then we also have a tailings plant that produces ultra-low-cost ounces. The other complex is Evander Gold mines. The largest operation that we have now as part of the Evandar is the Elikhulu plant. That also produces very low-cost and low-risk gold ounces. And then we have an underground operation that we are also in the process of developing further at the moment.

Matthew Gordon: Can we talk about some of the growth stories that I’ve been reading about, eg: Egoli and Royal Sheba. But let’s start with these numbers. You’ve produced some exceptional numbers there. What stands out for you?

Cobus Loots: What stands out is the fact that we improved our safety performance at the year past. That’s critical for us on a number of fronts. If we can’t produce safety, we cannot produce. I’m very happy to report that all of our safety statistics have come down in terms of incidents in the last year. That’s a result of principally the Elikhulu tailings plant, which inherently is just a lower risk operation, but then also a massive focus on safety schemes, safety initiatives across the group. The safety box is never ticked. We have to continue to work on safety, but it was a good performance. 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. On the cost side from an All In Sustaining Cost (AISC) perspective we reduced our costs quite substantially. I’d like to say we are the lowest cost producer in South Africa as a group, certainly amongst the lowest cost at the moment. But not only that, we also internationally very competitive. So, AISC came in at $980 an ounce. The international benchmark at the moment is just over $900. So, $980 versus $900. Not bad. And there is potential for us to bring down that cost further in the year to come. So overall, good performance. I’m also very pleased by the fact we are proposing a dividend for approval at the upcoming AGM. And that’s positive. We had to suspend the dividend last year as a result of obviously gold price. What was happening at Evander, the substantial capital we were incurring on the construction of Elikhulu. So, I’m quite happy that the dividend is back. We’ll be at a more modest level, but it’s still to 1% yield is not to be frowned at.

Matthew Gordon: Good news it seems to me, but not without a lot of hard work from your team. And I noticed the first thing you focused on there was safety, which again is unusual. People usually to stick that at the back of the presentation. Why is it such a big deal for you guys?

Cobus Loots: If you analyse it coldly, the world is changing. If you can’t produce gold safely, it makes it very difficult to produce. Our people are our primary asset. That’s an addition to our ore bodies and all of our other infrastructure. So, we need to take care of our people from a health and safety perspective. Safety first, health also very important. So, without our people, well, we can’t achieve what we’ve achieved in the last year.

Matthew Gordon: Good. Nice to hear. Let’s talk about productivity. You’ve increased your forecast, so you’re going to be producing at what level by the end of next year?

Cobus Loots: We’re guiding 185,000 ounces for FY20, which as going to you said, is quite a be a big improvement on the 172,000 that we did last year. So that’s off the back of a number of projects. So, 1. Elikhulu will produce now for a full year. We commissioned Elikhulu in September 2018. So, we really only had the benefit of nine months of production from Elikhulu. You obviously ramping up also. So now you’re looking at a full year of production from Elikhulu which includes the enhanced or increased capacity via the ETRP. It’s a tailings block. So, we’re saying 65,000 ounces from Elikhulu. We’re saying 20,000 ounces from what we call the Evander Pillar project at the Evander underground, and then 100,000 ounces from Barberton. So, that makes up of our increased production guidance of 185,000 ounces.

Matthew Gordon: That puts you firmly in the mid-tier producer range. And if you look at what gold price is doing in the last couple of months, you’ll start to see the benefit of that in terms of margins, because of the amount that you’re producing. I make that point for investors, because there’s an assumption because gold is up that the junior explorers and developers will benefit. And they don’t. It’s the producers who will benefit far more quickly because of sales. You talk about the lower AISC, which I thought was interesting. You are striving to drive towards that $900 mark. You’ve clearly made some headway into that. What do you attribute that to and how are you going to continue driving the AISC lower?

Cobus Loots: The first contributor to the reduction of AISC has most definitely been our tailings business. We commissioned Elikhulu in the last year. It’s quite a large plant. It processes 1.2Mt of tailings p/m. And that’s where we get our 65,000 ounces of gold for the next year. The great thing with Elikhulu is it produces at an exceptionally low AISC. We should be at $650, if not lower. We then have the Barberton tailings retreatment plant (BTRP) that does also 20,000 ounces. So overall, we have 85,000 ounces that are what we like to call ultra-low-cost production. This provides a stable base load, for our portfolio, and allows us to survive pretty much in any gold price environment. And it brings down the groups AISC quite significantly. Those are the tailings businesses. There’s quite a lot of optimization happening underground at Barberton. We’re simplifying the infrastructure. We’re doing a lot more development which allows us further access to high-grade ore bodies. We’re looking at the marginal side of the business to see if we cut some ounces and reduce costs? There are a number of initiatives also ongoing to further reduce the AISC for the group.

Matthew Gordon: But that does tend to suggest that the Barberton costs are quite high.

Cobus Loots: If you look at our results presentation, Barberton underground actually has put different shafts with different cost structures. The flagship underground business is Fairview. Fairview has been going for many years. It’s an incredibly high-grade ore body. It’s on average more than 10g/t, but we get pockets of +100/gt. The principal ore body that we mine at Fairview is the MRC. It has a life currently of 20 years. And we’ve been doing a number of improvements to infrastructure to ensure that we can continue to mine successfully, safely and profitably in years to come. So, Fairview by itself is still a fairly low-cost producer. Then we have a more marginal ounces at Sheba and at Consort. So those are the answers that we have to focus on and reduce that all in sustaining costs.

Matthew Gordon: With regards to Sheba, what’s the chances of that making some kind of contribution this year?

Cobus Loots: Sheba has certainly contributed in the year past, but the focus is increasing that contribution. It’s a project that we’ve been speaking about for some time. We want to get the first gold out of Royal Sheba in the year to come. Sheba should do better this year.

Matthew Gordon: Let’s talk about dividends. But you’ve announced that you’re going to pay a dividend, it’s got to be voted for. I’m assuming the shareholders will accept. What made you do that?

Cobus Loots: It’s a modest dividend versus what we’ve paid in the past. It’s still in effect a yield versus having your money in a bank and in some jurisdictions earning a negative interest rate. I think that makes it attractive. If you consider the way that we think about capital allocation. 1. the first is investing in our assets. We have to continue invest in our assets, otherwise we will not be able to continue to generate returns. 2. is balance sheet, because of the project Elikhulu that we constructed in the last year, our balance sheet is highly geared, certainly more than what we’d like to see. So, in the next year, we’d like to repay quite a lot of the debt we have sitting on the balance sheet. 3. it is providing a cash return to our shareholders in the form of dividends. 4. once we’ve taken care of those we also look at growth.

Matthew Gordon: Mining is tough. Mining in South Africa is really tough. But your track record of bringing projects online is good. We talked previously about doing business in South Africa and what it was like. And you said, ‘yeah, it is tough, but we deal with it. We’re used to it’. Tell people about that conversation because I thought it was fascinating.

Cobus Loots: Well, I’ve concluded that gold is so precious because it’s so difficult to mine regardless of where you are actually doing your mining. South Africa has a fairly negative perception internationally and some of it is justified and some of it potentially is not. We have a long history of mining, certainly gold. More than 50% of all the gold that’s been mined in the world has come from our country. We have great infrastructure. We have access to power. We have access to technical skills. We have a good constitution. We have a good legal system, etc. But then you’re faced with the con’s also. You have unemployment. The economy is not doing great. There’s uncertainty in terms of mining legislation. We have power challenges, electricity issues. So, that sort of makes for an interesting mix. But as you point out, we’ve been able to mine successfully in South Africa for many years. We’ve been able to bring great projects online in South Africa in recent years which demonstrates that we have the ability to operate. One thing that’s certainly come to the fore in the last year is that Africa generally is a difficult place to do business. You look at regulatory issues in Tanzania. You look at terrorism in West Africa. You have to accept that mining in Africa does come with challenges and you have to equip yourselves and skill yourself to be able to deal with us and be successful and operate successfully and sustainably.

Matthew Gordon: You bring up points which most CEOs try to avoid discussing, which I appreciate. It’s also on page 7 of the presentation whene you talk about the underlying risks and how you’re dealing with them. It’s quite attractive when a company is refreshingly honest about the issues that they are dealing with. What it is hard to argue against is your track record of continually delivering the answers. What’s also important is driving that share price up. You have had your share price affected negatively. So what are you doing about it?

Cobus Loots: Well, if a share price does badly and we continue to sort of fret and worry about the share price, that it doesn’t really get us anywhere. So now we have a saying that ‘we focus on those things we can control and then the share price will take care of itself’, as it has done to some extent. I don’t want to speculate about the future, but now we’ve repositioned ourselves as a low-cost producer, even in a global sense. We have a long life. We have great projects where we can further increase production with fairly benign investments. I think we’re well positioned. We are safe producer. We are investing into our communities. We’re making a difference where we operate. All of that makes for a good mix. And if we deliver pretty much what we said we will do, the share price should take care of itself.

Matthew Gordon: As a producer, you’re benefiting from a higher gold price. Certainly, next year’s numbers will should, if it continues, benefit from a higher gold price because your margins are quite good. They’re definitely improving. I want to see them continue to improve. And I’m sure you do too. Let’s see what that looks like in the next the next few months. The one thing which I look for when I’m analysing a company is an understanding its financial health. You have debt at the moment. Which project are you using that for at the moment?

Cobus Loots: Well, that was the $130M Elikhulu project this last year. The project-based testament to what you can get done in South Africa. So, to put $130MIL into the ground in 12 months is not insignificant. This plant can cheat 1.2Mt of material a month. We currently produce for 65,000 ounces at an ultra-low AISC in the year ahead. So that’s to demonstrate that you can get things done in South Africa.

Matthew Gordon: And have you got more plans to raise any more money for capital expansion programs or are you done?

Cobus Loots: 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.

Matthew Gordon: So, margins are improving. Cash flow is starting to improve, are you starting see the benefit of it now?

Cobus Loots: Well certainly at the current gold price we are definitely seeing the benefit. That’s another positive around being based in South Africa. We have generally a Rand cost base, which is our local currency, which means that inflation is higher than what you’ll find in U.S. dollar terms. Wage inflation is higher than what you see in dollar terms. Electricity inflation is higher than what you’d see in dollar terms. So that’s sort of generally then puts a squeeze on margins. Where there’s a benefit is when you find a local currency, the Rand, blow out a little bit more to the dollar. What it’s done in the last months. So, then you see the margins actually go up quite a bit more than what you would find in dollar terms for your African producer. You can look to hedge. But what I’m saying is that the negative on cost inflation is offset when you find a large depreciation in Rand, which is what we have seen in the last month. So, $15,000 gold price is good for us, 700,000 Rand per kilo gold price, which is what we look at is even better for us at the moment.

Matthew Gordon: And then there’s just one other aspect – you’ve covered off safety and you’ve covered off the CSG component, but there have been some disturbances in-country. One of your sheets talks about arrest rates. Why declare that one? What’s that got to do with your ability to mine?

Cobus Loots: Well, illegal mining is a serious issue, and not only in South Africa and the rest of Africa. But you do find the guys being in South Africa quite militant, aggressive, armed. It’s meant that we’ve had to up our game a little, to professionalize further. We’ve spent a lot of money on security in the last year, more so than in years past. And that’s to protect our assets and to make sure we can continue to mine safely and sustainably into the future. So, yes, it’s endemic in South Africa. The fact that you have really high rates of unemployment. That’s going to create discontent. It’s going to create sort of people that have nothing to lose. And hence are desperate and that’s understandable. And so, we do what we can. If you look at our operations, contractors and employees combined, we employ 3,500 people. So, rule of thumb each of the workers and contractors look after up to 10 other dependents. So, 35,000 people that’s depended on our business. So, that is a big responsibility for us and it’s also a big responsibility for government to make sure that we can continue to operate. And we have been seeing the support from government, both nationally and locally, in terms of making sure that we can continue to operate.

Matthew Gordon: It is not just restricted to Africa either. We’ve been speaking to some companies in South America also struggling with illegal workers and all the issues that brings. You’ve got to be sensitive, but you also need to be able to continue to mine. If I may finish off with what you’ve done with your current assets, you’re sweating those assets and working them hard. And that’s reflected in the numbers we see. We look forward to seeing some guidance as to what that is looking like during the course of the next 12 months, obviously. And the final question is always, so any plans for any acquisitions?

Cobus Loots: We continue to look at acquisitions. It’s always a good thing because it teaches you. I always say in looking at other people’s businesses, you learn quite a bit about your own assets and what you can do differently. So, to some extent we’ll be busy with Royal Sheba, as a product of us looking at assets elsewhere. So, it’s not a priority for us. If we only sweat our own assets and we develop as we’ve set out in our plans for the year ahead, you should see a nice appreciation in the value of the business. So, an acquisition is not an imperative for us. So, we’ll continue to look, but we are certainly by no means desperate. And we’ve always said if you can develop your own portfolio, that really is first prize. Elikhulu being case and point. Egoli potentially also part of Evander, being a second example of what we will look at in the year ahead.

Matthew Gordon: And I’m guessing, given you’ve got experience in underground mining and tailings, if you were looking, you’d be looking for some similar kind of setup that would be optimal for you.

Corbus Loots: I think generally it’s difficult for us to justify going out of Africa. Southern Africa in a way makes more sense because it’s close, it easier to manage. Well, I wouldn’t want to limit the company by only that. So, you know, does it make sense a risk adjusted return basis. That’s what we would look at.

Matthew Gordon: Cobus, thanks very much. I know you’ve got a really busy day today with these numbers out and you’ll be speaking to lots of people. Thanks for making the time for us. Appreciate that. Please stay in touch, because I think you’ve built, or you are you continuing to deliver on your track record. Refreshingly honest.

Cobus Loots: Great. Thanks for having me.

Company website:

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Sierra Metals (TSX: SMT) – Good Fundamentals, Main Shareholder Restricting Stock (Transcript)

Interview with Igor Gonzales, President and CEO of Sierra Metals (TSX:SMT).

The fundamentals of Sierra Metals are good and the company is effective, safe and robust. However their share price has been negatively affected by a significant shareholder, Arias Resources Capital, needing to off-load up to 30% of the shares. Arias controls 52% of the shares so liquidity was an issue previously. The market knows this and despite successful operations on the ground, the price is being held back. We try to find out how the company is resolving this issue. Let us know what you think about their response to this in the comments below.

Sierra Metals is a South America brownfield and greenfield focussed Silver, Copper, Lead and Zinc miner. $290M, NPV c. $500M. They have paid back a $34M of debt and $15M revolving credit back by restructuring their debt, currently at $59M. Revenues are $52M with $13M of operating cashflow, to fund their capital requirements and operating costs. 2019 is a year of heavily capital costs as they will be investing $83M.

Sierra Metals is one for new investors. Existing long-term shareholders should also feel that the share price will eventually be resolved with Arias. Short-term holders and traders may be be less satisfied, but they always are. We view this as an opportunity to get in cheap.

There is a new 43-101 due by end of the year and another in Q2/20. Lots of infill drilling. Brownfield and greenfield exploration is the foundation for their strategy going forward. A good track record of delivering improvements in operations and they are generating cash. Operating in two countries with good mining codes and taxes with a good infrastructure and in the right mining jurisdiction. There is a lot to like on the mining side.

Interview Highlights:

  • Overview of the Company
  • Projects in Peru & Mexico
  • Company Financials: Arias Resource Capital, a 52% Shareholder – How Quickly Do They Intend to Sell and Are There Any Regrets?
  • Why Invest in Sierra Metals? What’s in it For Investors?
  • Strategy & Risk Mitigation

Click here to watch the interview.

Matthew Gordon: We spoke back in May when you told us your story. We want to catch up and see how things are going. So, why don’t you kick off for people who’ve not heard this before with a one-minute summary and then we’ll get into some questions.

Igor Gonzales: Sierra Metals is a poly-metallic producer that operates in two jurisdictions, Mexico and Peru. We have two operations in Mexico, the Bolivar mine, which is a copper and gold Silver play, and the Cusi mine, which is a Silver play. It’s our smallest mine. And then in Peru, we have the Yauricocha mine, which produces all fine metals. We are now in a process of expanding our company.

Matthew Gordon: Tell us what’s going on in Peru?

Igor Gonzales: In Peru, given the fact that we have an older mine that has been operating for 70 years, we need to keep on top of the infrastructure upgrades. And therefore, we have five ongoing projects now in Yauricocha. The main project is the shaft upgrade, the Yauricocha shaft. This is a brand-new shaft that we’re building from scratch and we’re in the third year of construction and we have 1.5 years to go. However, we’re going to be implementing portions of the project as they become available. Then, we just completed the Yauricocha tunnel, which connects all the entire mine facilities with the processing facility, that’s now up and running and operating. Then we have all the ventilation upgrades that we’re doing, and that work is continuing as we speak. We also have the tailings dam, phase five upgrade. We obtained the permits and now we’re in full construction mode, which should finish the main dam for phase five sometime in September of this year. And then we also have a new mess hall and camp refurbishing project which is ongoing and will finish in the second quarter of next year.

Matthew Gordon: What’s happening in Mexico?

Igor Gonzales: We completed two expansion projects. One in the Bolivar mine, which initially was conceptualized to go from 3,000tpd to 3,600tpd. We then added some additional capital spend and now we have completed all the construction of that expansion and we are in the final phases of the ramp up, both the mine and the plant. And I’m happy to report that as of Q2 we have on average 3,700tpd per day, which is above the initial target and we continue to ramp up those 4,000t in Q3. We would like to take that ramp up to 4,250tpd in in the Q4 of this year. So that ramp up is going well. We achieved the intended initial capacity and then we continue to ramp as we go. Then on our next mine, the Cusi mine in Chihuahua. We increased its capacity from 600tpd to 1,200tpd. 100% increase in capacity. We have completed most of the construction. We still have a few things that we’re finishing up. But we’ve had struggled with the ramp up both at the mine and at the plant. However, we will continue to increase the throughput. We’re now approaching 1,000tpd so we’re getting closer to the 1,200tpd and we’re trying to get to 1,200tpd by the end of Q3 of this year so those are our two expansion programs.

Matthew Gordon: Let’s talk about your finances? When we talked previously you were talking about investing $83MIL into the company. You’ve got a market cap of $290M, NPV $500M. Those are good numbers, but you’ve got some debt as well, and you’re self-funding on the capital expansion program. So, can you run through some numbers for us, please?

Igor Gonzales: I will talk about the debt. We had a loan from a Banco Acredito Peru this year at the end of Q1 for $100M and that allowed us to pay a remaining $30M-$34M in the purchase that we did in Yauricocha, which was another loan that we had outstanding. And we also pay a revolving credit of $50M and we will have $30M of funds for additional expansions or we would like to give it. We have reconfigured our debt profile. Right now, our net debt is about $59M. Now, going to our performance for the Q2. We had revenue of about $52M and about $13M in operating cash flow, that allows us to still fund our capital requirements and all our operating costs. This is a year of heavy capital investment for us. We initially budgeted for $83M. We had a strike Yauricocha that forced us to defer some of the capital into 2020. However, we remain with the same projects. Also, we completed the capital spend in Bolívar and we are completing the capital spending in Cusi. So, it’s going to be a very fruitful year for us once we are done with all the capital investment.

Matthew Gordon: I feel that you know what you’re doing, your team knows what they’re doing. It’s a very well-run, safe and to use a word that you’ve used in your presentation, it’s a very ‘robust’ operation. But I’m not excited by it, and I want to know what am I missing. Because you’re producing cash flow. You’ve got revenue. You’re in production. All the right parts are there. What am I not seeing?

Igor Gonzales: I think we’re not also happy with the current share price, which think we’re undervalued.

Matthew Gordon: Why?

Igor Gonzales: We think that we don’t have enough float in the market, in our share. We have a main shareholder which holds 53%, Arias Resource Fund; he holds in two funds. He’s trying to resolve Fund 1, which he’s committed to do and I think that’s part of the equation here. And so, when this Fund 1 issue gets resolved. I think that the float is going to normal levels and then that’s going to help our share price.

Matthew Gordon: How much does Fund 1 own?

Igor Gonzales: Fund 1 owns roughly 30% and Fund 2 about 23%.

Matthew Gordon: So that’s a lot of shares to come into the marketplace, which is great for potential liquidity, but it’s also a problem for the Fund. How quickly does he need to sell these into the market?

Igor Gonzales: I don’t have that information because we don’t we don’t manage the Fund and Arias Resource Capital has that all that information.

Matthew Gordon: So, they are not are not obliged to tell you how they’re going to manage that into the marketplace?

Igor Gonzales: I know they’re doing some movements to try to resolve that. And they have invited third parties to review our operations and see if they can commit to packages. But that’s as far as I can I can tell.

Matthew Gordon: Because that’s going to be holding the stock back, because people know that’s coming.

Igor Gonzales: They’ve been inviting the parties to look at our operations. We’ve entertained their visits and so forth, so I think it’s a moving process.

Matthew Gordon: It’s a moving process, which is affecting your ability to create shareholder value today. All you can focus on is delivering on the mining side, the production, the announcements.

Igor Gonzales: Exactly. That for us is extremely important not to lose focus of what we are here to do, which is our long-term strategy. We need to continue to add value to our units and to create value for our shareholders, independent of who holds our shares. I think that focus needs to remain and we are doing that, we’re delivering on the expansions. We will do another expansion in Peru. We’re now doing all the permitting work. And so, we continue to drive our strategy forward to grow the company.

Matthew Gorodon: It must be like trying to do your job with one hand tied behind your back, because you’ve got a significant shareholder restricting your ability to create value for shareholders in the marketplace. So, you are having to focus on mining, which is which is good is what you’re good at. And I fully trust that you get at it from what I see. Do you regret doing that deal with Arias?

Igor Gonzales: No. Arias had the ownership of the shares for quite some time now. I entered the company after all the shares were in place, so I have to focus is on trying to grow the company myself and not be side tracked by the activities of the shareholders.

Matthew Gordon: It’s a kind of salutary lesson in terms of how share structures are set up and ownership structures are set up, because it can restrict a company’s ability to perform as it should. I would argue that on your fundamental numbers, your shares shouldn’t have done what they’ve done in the last year. They should be heading the opposite direction. So, what’s your message to shareholders on this topic?

Igor Gonzales: I think our main message to shareholders is we’re staying the course. We’re creating value. We’re showing the numbers, we’re reducing our costs, we’re increasing our production throughput and recoveries. And so, we have all the main elements that create value in a company and they are in place. So, we will continue to do that and remain focused on that aspect of this.

Matthew Gordon: What I’m about to say, I don’t think is of any comfort to your existing shareholders, but for new shareholders coming in, this is a very interesting proposition. And I don’t expect you to comment on that, you’ll get yourself into trouble.

Igor Gonzales: Once the metal prices recover, the potential for our shares to improve are quite significant.

Matthew Gordon: So, it’s a question of time? When Arias sorts out Fund 1 or one of their two funds, and gets these block sales away, then your arm will no longer be tied behind your back. You feel that the market should recognise what you have been doing, is that what you’re saying?

Igor Gonzales: Ibelieve so. I believe that once we have the right float then the market will start recognizing the value for Sierra as they should.

Matthew Gordon: Do you mind if we just talk about strategy? What’s your thinking in terms of building this business? I know you could say you’re mitigating jurisdictional risk because you’re in two countries. You’re underground mining. That’s what you know, that’s what you’re good at. And you’re obviously in production, which is all good. But what is it that you’ve set out to build? And what will this company look like in 12-24 months’ time?

Igor Gonzales: A fundamental element of our strategy is exploration, brownfield exploration for one. And then the second phase is greenfield exploration. We have been putting important Resources in both areas. We’ve been growing the Resource of all our three mines steadily over the last three years and we continue to do so. As a matter of fact, we will have two new 43-101’s for Bolivar and Yauricocha by year end in 2019. And another 43-101 in the second quarter of 2024 at the Cusi Mine. We continue to do brownfield infill drilling also, in all three mines, but in Bolivar and Yauricocha, besides the brownfield, we’re also doing some greenfield exploration close by the operation. In Yauricocha, we have high value targets for this year. We’re already drilling with two platforms and in Bolivar we’re also doing some near mine exploration, but these are brand new targets and we continue to expand our Resource. So, I think that’s one of the key elements for our growth is to find additional Resources, then turn those Resources into a reportable Resource, via 43-101’s and then conduct the expansions that we require accordingly. So, exploration for us is the fundamental foundation of our strategy.

Matthew Gordon: So those are things that you’re going to do. Build up the Resource and reportable Resource, but to what end? What’s the strategy? Not what’s the deliverables? You are going to drill holes to build a company of a Resource of what size and for what purpose? Are you going to mine it yourself?  Are you going to sell it? What’s the game here? What do investors need to know?

Igor Gonzales: Well, it will be hard for me to tell right now what we are going to find via the exploration. However, we’re open in doing joint ventures or bringing new partners if our exploration results deliver significant results. So, I think we keep ourselves so open. We keep analysing other properties, other projects that come by and we were open to growing the company also via that avenue which is associated with other enterprises.

Matthew Gordon: But you can’t say to what end? If someone said “What is Sierra Metals? What are they trying to be?” What what’s your answer?

Igor Gonzales: We would like to be a second quartile producer in terms of volume of production. And right now we’re in the third quartile and our target would be to be in the top of the second quartile and the top of the second quartile of production with all the other Silver producers.

Matthew Gordon: I think the fundamentals of your company are good, but I’m struggling to understand why I should be investing in your business. You talk about track record, robust performances, strong capitalization, low net leverage, robust liquidity. What do all these things mean? Why should I invest in your company and not the 50 other South American businesses doing the same thing?

Igor Gonzales: I think what we’ve got is a business that is generating cash. We’re operating in two countries that are very supportive to mining. We have all the Resources available to do our jobs in terms of contractors, people, services and legislation and tax stability. We also would like to point out that the potential of our properties is very significant given their location within the countries where we operate. In the case of the Yauricocha mine, it’s located in a major fault system where North and South you have very large deposits and so the likelihood of finding significant additional Resources is important. Likewise, in Mexico, in the Bolivar mine, we’re in a location where it’s a mining jurisdiction with a huge potential for growth. So that’s another part that is very appealing to our story. We’re not just in one mine and trying to develop one mine, and that’s it. I think we can grow these mines into something much bigger. We don’t have the results yet, but they all the geological information that we have to date indicates that we are in a very fertile zone. Our track record, if you analyse Sierra at 5 years ago and Sierra today, we increased our throughput and our production, our cash flow generation tremendously. 5 years ago, we were probably in Yauricocha around 2,000tpd. In Mexico, at 800tpd and today we’re at 4,000tpd. So, we’ve improved our capacity to generate cash via production in a significant way. So that’s our track record of creating value for our investors via the improvement. In the meantime, we also have generated the cash flow. We’ve been trying to manage our debt. We have a solid financial position. We have $40M cash as we speak. We have a $59M in debt. And as soon as we finish our expansion projects, our ability to generate cash is going to be even greater than what it is today. But the most important element of our business is the people. We have been able to attract talented and experienced people into our team. And we operate with three mines and the mines have their individual staff. But we also have a senior team at the corporate office that provides technical support to our operations in projects, in managing, in planning, and very soon in maintenance and asset management. So, with that oversight and support to our operations, we bring the experience at the head office that can be utilised in the different operations without interfering with their work, but reviewing their plans, improving our plans. I think that part of the business has been reinforced in such a way that we brought in very talented individuals in to our company.

Matthew Gordon: I buy a lot of that. These are good mining jurisdictions. We’ll see what the drilling reveals. Having $40M in the bank is fantastic. Having free cash flow is fantastic. But you’re still paralysed in a way, in that shareholders make money when your shares increase. Don’t you think that you need to get involved in a conversation with Arias Resources Capital. Rather than them just sending people through to diligence your mine. Shouldn’t you understand what is the process by which you are going to release this pressure on us, because it is pressure on your share price. At what point do you get involved and say we need to be part of the solution?

Igor Gonzales: We review this situation with the board on a regular basis, and we have a share buyback program, for one. We had an ATM in place or another. Arias Resource Capital is moving is trying to deliver on Fund 1 and they are trying to resolve that issue. And we’re all aware of that. In the meantime, we have to stay focused on what we’re doing. But we don’t have control of what Arias Resource Fund does with the shares.

Matthew Gordon: I appreciate you don’t run their fund, but I’m saying that they should, as a matter of courtesy and expediency, work with you to agree and resolve the way forward if they are to exit quickly.

Igor Gonzales: And we’re are co-operating, they’re bringing parties for review, etc. and we are cooperating with that. We have an active data room where they can go and see our company and they can analyse the potentiality of our business.

Matthew Gordon: I think that you’ve got a great company. I think you’ve got a great team. I really like the way you talk about your business. But I think there’s this pressure with Arias Resources Capital which needs to go away. But when it does, I would like to think that your shares will be given the chance to breathe again and maybe start moving in the right direction. Igor, thank you very much for your time today and your explanation. You’ve been very honest, as always. So, thank you.

Igor Gonzales: Thank you, Matthew.

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Equinox Gold (TSX-V: EQX) – Increase of Market Cap to $725M in 18 Months (Transcript)

We interviewed Christian Milau, the CEO and Director of Equinox Gold (TSX-V: EQX). We ask him about potential M&A, and where the potential shareholder gains are coming from. Do they need to diversify? Is there a retail investor story here? And will the Gold price stay steady?

Really robust conversation and an insight into some of their problems and challenges. This is the coming together of 3 Gold assets, 2 in California and 1 in Brazil, and 3 big names in the shape of Ross Beaty, Richard Warke and Lukus Lundin. A strong management team, who has invested a significant proportion of their own wealth, and is incentivised on deliverables and share price. They pride themselves on being in the lowest quartile for salary in Gold companies. This is a low-grade bulk tonnage business – so it’s about moving dirt effectively and extracting Gold efficiently. Achieving a market cap of $725M in 18 months is no mean feat.

Christian talks through their strategy and business model, including their 5 year plan. Long-term planning is the game, not short-term decision making. They have access to cash if they need it. Their Aurizona Gold mine is getting in to production which is important to the market and they feel they will do this following some delays caused by heavy rains.

Some highlights:

  • The start of Equinox Gold and how Ross Beaty got involved with their new partner.
  • The three Assets, bringing them together and issues that had to be dealt with .
  • Company Financials: a $725M Market Cap and the costs of the Assets.
  • Mining in Brazil: positives and negatives.
  • Equinox Gold Business Plans: Why a Convert? 5 year plan?
  • Share price and The Gold Market.
  • M&A Activity?
  • ETF’s and their impact on Equinox Gold.
  • The Upcoming Year, Remuneration, And Reasons to Invest.

Click here to watch the interview.

Matthew Gordon: We spoke back in February. A lot’s happened since then and I guess we’ll get into that in a minute. But why don’t you kick off for newcomers to the story, gives us a 1-2 minute overview of the business.

Christian Milau: We’re now a mid-tier Gold mining company based in the Americas. We’ve now got one producing mine in Brazil, which we’ll talk about, but also we’ve got a producing mine in California and we’ve got another we want to build in California starting in the next 6mths here. So we’re now going to be a three-asset company that’s focused on the Americas with roughly +200,000oz production today and with a goal of going to 400,000oz-500,000oz of production in the next few years. So we’ve got a nice platform in this kind of market where Gold seems to be picking up.

Matthew Gordon: Let’s get on to that in a second. We’ve got a few questions from subscribers. I’d love to throw a couple of those at you. They’re really about the origins of this all because you’ve brought together three Gold assets. You’ve got some big names attached to those assets: Ross Beaty, Richard Warke, and your team, obviously.  Tell us about that first conversation that you had, how did this come together?

Christian Milau: Yeah it was interesting. I guess with Ross, he had a Brazilian asset and company called Anfield back in the day, a couple of years ago. We started with Luna Gold which was the Brazilian asset in Arizona which we now have put into production. We had some commonality and we obviously interact in Vancouver on a regular basis, see each other – it’s a small city. And we always talked about ‘how is it going in Brazil’ and ‘what do you plan to do in the future’ and we realised that we had the same vision and goal. We both want to create sort of that mid-tier to larger Gold mining company at this bottom point of the Gold cycle. Ross’s vision is really around building something in Gold, it’s very similar to Pan American Silver, which is now an 11-mine company, which is a good larger silver company, wants to do the same in Gold at this point. And my view is, do the same as we’ve done recently, myself, and some of their team, and Endeavour Mining. And start with one asset and try and build it into four to six assets over time. So we really had the same vision and Ross said he started his career with Equinox Resources back in the 80s and 90s and that was a success and he wouldn’t mind book-ending it with something like this at the end and we suggested the name Equinox Gold and he loved it. He said ‘it’s a great end to my career’.

Matthew Gordon: So it isn’t one of those the-sum-of-the-parts stories? You get some people who are very protective over their assets, they want to do their thing and they don’t need any help. But you guys all seem to have a track record of bringing together assets and building something bigger and, therefore, hopefully, better for shareholders. Is that what happened?

Christian Milau: I absolutely believe that. I mean, to put it in real context we sat in a room together myself, and Greg on our side, Richard Warke from the Newcastle side, and Ross from the Enfield side and we sat in a room for a couple of hours and we said, with no advisers, no lawyers, anything. We said ‘Hey, what is our vision? Is this common? Who could run this, who wants to be the face of it and contribute to the financing of it’. And we actually came up with a board and structure very quickly, and a valuation effectively that at least got it kicked off. And that was all because we had the common vision. Richard Warke again has worked with Ross over the years in building companies like Ventana and other things. And Ross tends to be more of the market-facing person of the group and was very happy to take the chairmanship. And obviously myself and the team are very happy to run the business so there was no stepping on each other’s toes, it really fit together nicely.

Matthew Gordon: So how does something like that work? You’ve got two assets in California and you’ve got one in South America. They’re all Gold. So there’s that in common, but they’re all in slightly different phases of development, so how did you imagine that coming together and how’s that indeed happened?

Christian Milau: It almost worked better because they were in different stages or phases. So we had the one producing asset in California. So that’s kind of our starting point we can actually use that for leveraging off knowledge skills etc. And recording all these different techniques of managing the business and then we had one in construction in Brazil. And then we had a third one which is sort of in that study phase, in the pipeline that could be constructed after we finished Arizona and Brazil. So, when you put them together you actually get a nice runway to becoming a mid-tier producer into the system. Rather than just slamming together three operating mines with different cultures, we are able to actually put them together, build the culture as we go.

Matthew Gordon: Because I actually watched our interview from February this morning, as a run through, remind myself what we talked about. The big theme that came through there was, not only have you got these three assets, but you have access to cash. You’ve got… Both Ross and Richard are very capable individuals, have track records, you are too. But cash wasn’t an issue for you. And where we are in the cycle, we talked about how advantageous that is for you in terms of being able to pick up assets cheap, and perhaps we can get onto M&A in a minute, but just again to remind people on the financial side, you know, where you started. You had these three assets, some assets you offloaded, something on the Copper side. But what did you start with and how did you value those and lets maybe get into where they are today?

Christian Milau: So when we did put this together we had obviously the three Gold assets, which were going to be the core to our business. We had a couple of our columns smaller, one was a processing mill in Peru, one was a small Gold project in B.C. And then we had a bunch of Copper assets. So what we decided was to focus on the core value-creating Gold assets. File out the Copper assets last summer into a separate vehicle which I’m happy to talk about but we’re excited and we still own 40% of Solaris Copper. Then we sold the mill in Peru to a local operator, I would call it. And then we sold the B.C. Gold asset just recently to a local group here because they were too small, not going to create enough value in a company now our size. We’re now $600M-$700M market cap, so we’re focused now on the pure Gold assets of scale.

Matthew Gordon: So do some simple Math for me. So you brought three assets together which were valued at what?

Christian Milau: Oh boy… I guess when we brought them together we bought Mesquite for just over a $150M. Aurizona and Luna Gold when it came in, I can’t remember the exact valuation, but I’m gonna say it was between $150M-$200M. And then Castle, again, was $150M-$175M and we put them together. The nice thing today that we’re excited about is, you see that our market cap is now greater than the sum of those parts.  We’re now $725M.

Matthew Gordon: $725M. You told me this morning.

Christian Milau: There you go.

Matthew Gordon: But how much money have you raised in there as well, which is obviously GNA, CapEx, etc.?

Christian Milau: So we’ve probably, during that process, we probably raised, I’m going to say it’s $50M, maybe it was up to $70M to help finish the funding on Aurizona in Brazil. But what we’ve really done on the funding side that’s more interesting is we’ve restructured the balance sheet completely, which, again, I’m happy to explain.

Matthew Gordon: Tell us about that because obviously we’ve seen mention of Abu Dhabi sovereign wealth fund in there and, obviously, project refinancing as well. So why don’t you give us that before we get into the projects proper?

Christian Milau: So everything over the last 18 months has probably moved faster than we even expected. We’ve had great support from guys like Ross and Richard and some of our core shareholders. And so we originally had a project finance loan from Sprott that was coupon 10%. That was financing the build in Brazil. It’s expensive money but we our single-asset development company was unfunded when that went into place, so it was market. Then we had an acquisition facility from Scotiabank and a group of other lenders that came in to acquire Mesquite. So you’ve had siloed structured financing or debt that sat at the asset level. What we did in, I guess it was February we announced and we’re just completing it right now, is we’ve paid out the actual loan that was project finance in Brazil. Replaced with the MOU Batalha convertible note, which is sitting at the corporate level and paying a 5% coupon, and brings in a partner that has a base of a trillion dollar sovereign wealth fund that is there to help us grow the business into the future. So they’ve replaced an expensive debt with, sort of, half the coupon cost but they’re also there to grow long-term as a shareholder and funding partner. So you bring that up to the corporate level. And the second piece was we took the same banking group that funded Mesquite and repaid and refinanced that acquisition loan and brought it up to the corporate level. And now it’s a corporate revolver that we can borrow and repay. It’s a little bit larger instead of $100M, it’s now $130M. So we now have all of our debt sitting at the corporate level, all of our cash flows are fungible and free to move amongst all of the assets in our organisation and they’re all Growth Partners. So as we grow, they all want to be able to fund us in a bigger way.

Matthew Gordon: Yeah, again we did talk about that last time and I do want to talk about it in a minute, but let’s just quickly go through, I think, a point which is talked about in the chatrooms, etc. And that’s your ability to prove the economics around the Brazilian asset and get that going, bringing that to market. So where are you with that?

Christian Milau: So we finished the construction in, I would say, early May and we were commissioning the asset. It was probably about a quarter behind, so a little disappointed with that.

Matthew Gordon: Why was that?

Christian Milau: Basically, there was no major factor. I mean, the rain was very heavy this year. I think we’ve had 3.5m of rain in the first three or four months, where normally you get 1m-2.5m for the whole year. So it’s a very heavy year. So doing electrical terminations and then the rain is probably at 50% productivity for that work. There’s a bit of extra piping and scheduling work at the very end so nothing that I would say was a major incident, like the mills falling off the trucker that ship or something.

Matthew Gordon: Right. There’s no issues from the Brazilian government? Obviously, a very high profile incident earlier this year but are they more nervous?

Christian Milau: No, the government… I give them their credit. They actually delivered us our operating license the day we poured Gold. Normally it comes about 6 months after you pour gold. So I would say, actually, a real tick to them, a check in that box where they delivered it early. And in terms of inspections on tailings dams, which obviously are a big thing in Brazil right now. That incident happened early in the year. They were inspecting all the dam sites around the country and they did come to ours, of course.  and we were just in final stages of getting it into readiness state of readiness and basically we our design is not an upstream down like Valley had there and had the issues with which is inherently less able. This is downstream in centre line which is inherently much more stable and we’re very happy with the inspections actually.

Matthew Gordon: So what do you think has happened there? Do you think, obviously it can go one of two ways. The government, or the Ministry of Mines can get very very nervous and take longer to get things done. Or, because it’s damaging to the reputation of what is a big mining country. They try and accelerate things to say we’re open for business. What’s your sense of what’s going on there?

Christian Milau: I almost think they’re accelerating things at the moment because of the urgency and the need, with the recent incidents there. And I do think when they’re not happy I I would suspect it was going to take longer to permit. There will be more hurdles to jump. But if you’re doing things on the international standard basis, that is expected of companies like ours, you really shouldn’t have problems. And we haven’t experienced any.

Matthew Gordon: Right and so the team that are down there, they are experience with South America and Brazil in particular. A quarter behind. But unfortunate event is what you’re going with.

Christian Milau: Yeah. And so what we said was ‘all right, sorry we’re a little bit behind a little bit over budget’. We were probably about 10% over budget overall which in the scheme of things, three months and 10% over is not the end of the world’s. It is a bit of a shame. But since May 14th when we did pour Gold, we’ve now gone for about 30 days of production and we are now producing or putting through the mill more than the rate of capacity. So I think we’re at 8,000 tons a day at our capacity and some days we’ve gone up to 9,000 – 10,000 tons. So it’s very nice to see that you’re 10% plus over, the mill is actually capable of performing at the expected levels.

Matthew Gordon: Right. Was there any doubts in your mind as to whether Brazil would work or not? Or has it all going swimmingly?

Christian Milau: I think anyone who would say there isn’t a risk or doubt, would be kind of kidding. But we did feel that we were investing in this project to make it successful. The idea was not to cut corners. Because of the past history here, when they originally built this in 2008 or 2009, they didn’t have a proper crusher at all and they didn’t have a proper milling circuit, it was a fairly old six year Asbestos mill from Quebec. So it was almost setup to have challenges and it still performed okay. So we figured if we spent the money and put in the proper equipment with professional contractors, you were bound to have good success here in due course.

Matthew Gordon: If I may come back on the on the refinancing that you did. I know you’ve got all at   corporate level which is much easier to deal with and you’ve re-financed it. You’ve got a little bit more cash there, a bit more flexibility. Are you happy with the with the terms there. Or is it a case of ‘actually, I like who it’s from’. Because obviously the Abu Dhabi sovereign wealth fund has a lot of cash available and if likes what you’re doing, that bodes well for M&A activity, which we talked about previously. Were you happy with those terms.

Christian Milau: We’re extremely happy. When you look at that convertible bond, we have a partner who is not out there shorting or hedging your stock, like a normal convertible might be with normal hedge funds. They are a long-term investor. They have no short term time horizons. They wanted to work with Ross, and Ross has probably been talking to them on and off for at least 5 or 10 years. I think they were excited to partners someone to build a great Gold mining company that they could trust. So I think we got really good terms. And we looked at various market comps and what we might have been able to do in the market I think for exceeded those.

Matthew Gordon: So why a convert? They could’ve structured it any way. They’ve got the money, they could paper it up anyway, so why convert? Why did that work for you?

Christian Milau: It’s interesting. At this stage of our involvement and growth and development, they would like to be a long term equity holder but they’re used to actually making investments. I’m going to use a big round number, but a half a billion dollars, so it’s a very small investment of $130M for them to come in. There is a debt instrument in place already that could be re-financed and clearly replaced. And even that link ultimately to being an equity investor, which we would like them to be in the long-term because I think there would be a long core stable shareholder along the likes of Richard and Ross. So it almost this hybrid interim instrument that allowed you to solve your current debt, expensive debt situation, but sort of  link them into a long term equity position. And it’s a smaller ticket than they’re used to so it does I guess come in a form that gives them a little more security on day one than it would if it’s pure equity, a small check basis.

Matthew Gordon: Yeah. What is the coupon on that?

Christian Milau: 5%.

Matthew Gordon: 5%. OK. Pretty good. And what are the rest of the terms on then?

Christian Milau: So it’s a five year term. It’s 5% coupon. It converts at a 25% – 27% premium depending what share price you’re using. That’s $1.38 Canadian. Interestingly  when we announced it in February, the share price went up. And we’ve seen so many people announce convertibles that are market oriented, where the actual share price goes down. People are shorting your stock. Ours did the opposite. So we saw that as a nice vote of confidence that we had a long-term partner. And one of the biggest things I had was I was at a conference time, I had a lot of other peers come to us and say ‘can you make an introduction? How can we get access to that capital. It looks like a great partner that’s there to stick with you through the ups and downs of the cycle’. And right now, as you know, we’re towards the bottom end of our cycle and the smaller the company the harder it is to finance. And I think we’ve been well above our weight a little bit there.

Matthew Gordon: Yeah to just stay on that point, you did you did have a bit of a spike and then it kind of came down as his low as $1.01 on a couple of occasions, and your now back up at one $1.31-ish again. What do you think those drops were?

Christian Milau: Well the one thing for sure, Gold had its dip although it’s obviously much more positive, it hit $1350 this morning. So it’s much more positive. We’re in a $1270 to $1280, $1290 range. And below $1500 I see there’s not a lot of conviction from some of the precious metals funds, some of the generalists. They really want to see it pop over $1350 to really get some confidence. The other side was we were right in that crux period of finishing off Aurizona and until you’ve announced you poured Gold or you’re in commercial production, people have their doubts.  I guess rightfully so, they want to see that there’s no hiccups and major issues along the way. And we weren’t able to announce that until May 14th. So we had a double whammy of those two items I think.

Matthew Gordon: MOU Batalha, they are in. They are a partner now, equity and debt. What are there expectations? I see no board seat for them. But they have a big say in what they expect you to do, presumably. Or are they are a passive investor?

Christian Milau: No they do have a board seat.

Matthew Gordon: Oh they do, sorry.

Christian Milau: They are partners with Ross in many ways here and they see themselves on a pro forma basis, they would be an 18% shareholder if you were to convert at all. So we think of them as a core shareholder also, in the long-term. We very much want to work with them and their vision is actually very similar to ours, and they want to grow into a larger-scale Gold mining company. So we will definitely look to them to support us on growth activities, being acquisitions or growth internally.

Matthew Gordon: So if we go back to the first question, which is how do you guys come together and what was it it was and it was a common thought about what you could do. With MOU Batalha on board is that thought changed? Have your horizons expanded?

Christian Milau: I think it gives us maybe a bit more impetus to move quicker or at least it gives us the ability to think a bit more actively about how we can grow this business now because we know there’s availability of capital in the near-term and we don’t have to necessarily go and source it from new sources, if we do find an acquisition opportunity.

Matthew Gordon: Yeah so that so that saves a lot of time. Again just remind people the type of company you are. You are a bulk processor of Gold. You aren’t chasing veins around. So just quickly describe that for people because I want to ask you about that.

Christian Milau: Yeah. Our three, or two operating mines, and our third to come into operation are really are larger open-pit mines. So they’re big dirt moving exercise as you described it. Our goal here is to build scale and to be a growth oriented company and we’re not shying away from growth. A lot of the bigger companies in this part of the cycle have been paying down debt. And I’d say call it right-sizing or making themselves smaller and selling off assets. Where we’re trying to actually do the opposite because as the cycle does turn, we will have already been ahead of that curve and we’ve set a target. And it’s maybe a round number but we’d like to be a 1Moz a year by round the 2023.

Matthew Gordon: What are you today?

Christian Milau: So we’re probably 200,000oz and 230,000oz today. And with the assets we have in our pipeline we could go to 400,000oz to 500,000oz so roughly halfway there. And so the goal, we’ll need to add another at least two assets I think along the way to get to that sort of mark. And it doesn’t have to be a million, but it’s a good target.

Matthew Gordon: Yes. Nice round number as you say. So if I look at the type of company you are, the type of business that you are good at being, this large earth processing business, you’ve got the skill sets there. To find those types of assets globally, at the moment, well I know you’re kind of America’s focus but I guess it’s no restricting you. People don’t sell good assets cheaply. The Gold price is going up. So have you guys found things that you’re looking at or are you constantly evaluating now? What’s the chances of some M&A activity this year?

Christian Milau: We’ve been really inward looking because of finishing off the build in Aurizona and finishing off the integration of Mesquite. So I’d say we hadn’t been looking externally but I would say the last month or so, Gregg and Ross particularly have gotten really active again, thinking about what we could acquire. And so you look at several categories. You’ve got single asset producers out there, you do have a few multi-asset producers that are listed. You also have the major Gold companies who have been merging and there will be some castoff assets or some they’ll sell. They may be good or not good but they also might be just too small for them. And that’s one of the challenges now as a big company. And they might fit us perfectly. There are a few private assets owned by private equity groups that will come available in the next few years. And then there’s the smaller strategic assets that might be earlier stage for us. Maybe they’re not perfect for us today but could fit into our pipeline in a year two. So there’s a bunch of different categories, and we prefer to be in the Americas to start but we aren’t completely closing the door to Europe and Africa and Oceana necessarily.

Matthew Gordon: I think there’s a lot of people with a lot of ideas and I think it’s like when a celebrity turns up in a capital city, people talk about it and Ross has been spied at various locations so people are making assumptions. Not least various parts of South America. So it’ll be interesting to see where that goes and where that leads. But now is the time. From what you said before, now is the time. Now while it’s cheap, the the price of Gold is going up slowly and the confidence is slowly- well would you agree with that? Is it slowly returning?

Christian Milau: I think it’s slowly returning but it’s still… when you talk to our peers out there… it’s still pretty depressing, maybe not the right words, but people are pretty… they’re struggling to find new money, shareholders, people to get invested and interested at the smaller scale. And I’m talking sub a $1Bn of market cap. Interestingly it was two Fridays ago, we had a big block trade for 20M shares.

Matthew Gordon: I saw it, yeah.

Christian Milau: Sandstorm sold their whole position to a new long-term only fund. Who is not a Gold investor. I mean they do invest in a little bit of Gold, but historically they invested it all across different sectors and they have a good 25 year track record. So we’re really excited to see that kind of money coming into our stock, number 1, but also into the sector where there are people who are generalists, who’ve been talking about investing in Gold, who are now taking some action. And I think this last little tweak here where the dollar hasn’t fallen off a cliff, and it has stayed reasonably strong, the markets are a little bit wobbly. People are looking for somewhere else to invest their money and Gold has become a little more popular. And I think getting close to $1,350 and maybe if we can hold it for a little period here, I think there is some conviction that will start coming back, somewhere above $1350. Could we drop back down? Yeah absolutely. But it does feel a little more positive.

Matthew Gordon: Yeah. I think Ross was interviewed recently talking about the Gold price, and he was saying in the end 2017-2018, even though the Gold price went up, the equities fell down. These are some strange times when normal rules don’t seem to apply. And we talked previously about the distractions of Cannabis, Bitcoin and Blockchain before that. Well Bitcoin is coming back again. But do you think those distractions have gone away and this is just about people wanting to see how the geopolitical dust settles, or it’s just more fundamentally about the dollar?

Christian Milau: I think some of that speculative money in cannabis and cryptocurrency has come off the boil. I wouldn’t say it’s gone away. People are still making some money, but it’s not easy money anymore. I do think consolidation in both those sectors will happen. And people lose interest when they can’t make a quick dollar in the first three months of investment. And I think Gold is seen as a now coming to the right point this cycle. And I think what the markets are rolling over I don’t think anything major is happened there. Yes and the dollar maybe is going have a rougher patch with all these trade issues hanging out there, and all that excess debt in the system. Interesting it’s the first time in years, they’re talking about interest rate cuts. And I’m actually surprised they talking about that so quickly and so soon. That seems like to me a little early, but if we’re talking about interest rate cuts that can only be good for Gold, because it will probably impact the dollar ultimately. Right now Gold is seen as one of those bombed out industries and sectors that most other sectors are not in that position. Most other ones have had a good run over the past 9-10yrs at least at some point. So we are maybe going to be one sector that’s seen as having some value today.

Matthew Gordon: Yeah. Well it will be interesting to see how it plays out because I say I don’t think the normal rules have applied over the past couple of years with regard to Gold.

Christian Milau: Yeah that’s the hard part.

Matthew Gordon: Very complicated. It is very very difficult. You said something like a third way at a throwaway line though no one unless you’re over a $1Bn right. You’re at $725M. You know another acquisition you could get to a $1Bn but like you say, a $1Bn company. That’s that’s nothing, really.

Christian Milau: For the US it isn’t.

Matthew Gordon: For the U.S. It isn’t. But also is that how you measure yourself. Is it market cap? Is it to do with shareholder returns? Is it to do with how many assets he got? Is it to do with the potential exit in the future? What are you targeting?

Christian Milau: The thing that really matters is shareholder returns here. And the reason I say that is, Ross owns 12%. Richard owns about 6%. I have my small stake but it’s very meaningful personally. I really don’t care if I’m a $1Bn company, $500M or $3Bn.

Matthew Gordon: You’ve got a 5 year plan. We talked previously about a 5 year plan. You’ve got a 5 year plan. Today doesn’t matter so much. It’s like whereas the end point. And I assume..

Christian Milau: It’s not a quarterly business. We’re trying not to be overly quarterly results focussed. I mean that’s something where the UK I do actually misheard the system or is on a six monthly basis, where in a way it allows management to put their head down for every six months and focus on the business not have to worry about each quarterly reporting period. But we have that 5yrs plan or working hard to get towards that we’ve now put in place to financiers to allow us to deliver it. And interestingly that $1Bn mark I mean that’s not exactly right. But if you’re not in any of the indices the passive funds and I know there’s a big difference between Europe and the UK in particular v North America now. So much of the money over here in North America has moved into the ETF and passive funds.

Matthew Gordon: I was going to ask you. Has that was being distracting for you? Sorry to interrupt. I was going to ask you, how distracting have ETF’s been to you as a company?

Christian Milau: To distract, partly because you can’t talk and right. How do you convince them to buy your shares because they’re have to buy or have to sell. But on the other side of it, we are not in one ETF or indices but we are getting on the cusp and threshold of getting into them. And once you’re in them, and you have to have that buying. I mean I had someone say to me, there’s 30M shares with the buying coming once again GDXJ. And our key stumbling point is liquidity. But with this big block trade last week or the week before and the daily liquidity over the last few weeks is well in excess of a 1M shares we should in due course get a good shot at getting into the indices later in the year. And what we’re going to do to help that along is work hard to list in the US and to move up to the TSX. We have two California assets with a lot of U.S. shareholders and interested parties in the U.S. I gotta believe that both of those events will help us in addition add liquidity and a really good market.

Matthew Gordon: I think what for sure. So what do you think the criteria is to get on the GDXJ?

Christian Milau: I mean you do need to be a certain size in that and I know lots of companies are a lot smaller than us and they’re listed. But it’s roughly $1M a day of trading. That’s the key one. And it’s over an extended period. I can’t hear it’s 30, 60 or 90 days but it’s long enough where you need to keep it up, and you can’t just have these little blips that’s going to get you in there. So our goal really trade for the quarter at least over a 90 day period, $1M a day plus and look to get out it’s why you exchange the indices later in the year. And part of the other benefit to us is we have two operating mines. I mean we haven’t had an operating quarter yet from more has only got two operating quarters or two operating mines for a quarter or two and you’re in various different stock exchanges have greater liquidity and we’ve had this uptick in Gold. Got to believe that momentum is moving us in the right direction.

Matthew Gordon: Right. I agree with you. I think that’s that’s good news that you’re at that point now. Just on the market still we talked about ATX but you know there are people talk about the sector being under invested. Okay. That means that’s going to be a good thing for you hasn’t it. In terms of what you’re trying to create here the scale of what you’re trying to create right now.

Christian Milau: It’s fantastic in a sense because where we’re trying to build something that will be an investment of choice when it’s not under invested when when that generalist money and the allocation of funds that need to have whatever is 5-10% of their money towards something like Gold or harder assets would be one of those investments choice with liquidity that’s high enough to allow them to invest in our stock but also to get out of it. That’s what a lot of investors need to know is they can get out when they need to.

Matthew Gordon: Yeah. So in a case we just come back to the the assets side the side of things and you’re getting a couple assets into production now. The SEC is the exec. You’ve got a. We talked about 18 previously there a ‘been there done it, got the T-Shirt’ kind of guys, but you’re trying to lower the AISC, increase the margins here. How much time and effort are you spending on that because we’ve talked about a lot of M&A now but can we just look where the projects themselves would have been the issue has been this year that you’ve been trying to overcome an Iowa spike of some angst because it suggests margin to mean. Talks about profitability hopefully. So what are the issues that you’ve identified that you were focused on with your team.

Christian Milau: Yeah I mean for Arizona and Brazil you know getting it ramped up and running smoothly is the first thing and then working on actually making sure your costs are nice and steady and where you expect them to be. So the benefits with Brazil’s we now are coming through that period. I mean if all goes well I hope certainly sometime early ideally in Q3 we’re getting into commercial production. Then we start measuring it on a on a ongoing cost basis. And the benefit but the moment we’ve been trying to make sure that all of our inputs and supplies are as cheap as we’d expect in this type of market where I do think it’s not a huge demand. Things like cyanide and power etc. In these remote regions I think Labor has been pretty good to get recently because Brazil hasn’t gone through a great boom recently they’re probably coming off some eyes a few years ago. So we’ve been only piecemeal call it skilled labor in Brazil our supplies have been at reasonable prices. Power rates are pretty good in Brazil right now. We have hydroelectric power plants and then I think we’re setting ourselves up well with a good mining contractor as well that has great experience in Brazil but key components of the costs you’ve got to focus on locking them in getting good contracts getting good supply. So we rely on it. We’ve kind of come through that period now and now if your mill is getting the good throughput you know your cost just sort of fall out of that. And the other benefit that we have no control over obviously is the exchange rate. And in Brazil right now it’s been in that three point eight to four reply to all. You know historically it’s been lower so there’s been obviously the U.S. dollar has been strong so it’s hit kind of other currencies particularly know I know Australia Canada Brazil have been weak which is obviously a benefit to producers like us in that region.

Matthew Gordon: Right. And yeah I mean if you think I think that’s true if the exchange rate does it does hit people different ways. But just on that I mean this is the whole point about you know having multi jurisdictional deals risking your assets. I mean your Americas focused. Will you continue to do that obviously with this access to even more money than women. We lost hope is not a key driver for you in terms you’re risking process.

Christian Milau: Yeah I think having four to six assets is ideal.

Matthew Gordon: Is it Americas focused? Is that where you are going to stay?

Christian Milau: America’s focused. I’m not saying we wouldn’t go east or west of that but I think it’s easier to run where our corporate offices in Vancouver. Time zones are extremely good for South and Central North America. And travel is actually pretty good. I mean to get to the California site you can cover them both in a day for Vancouver effectively and is a bit further on sleep but I think we can manage it fairly well and turn the times on the communication there’s also travel and we prefer to stay in that kind of time zone.

Matthew Gordon: Okay. And I just want to I want to talk about this coming years in general terms and second budget. Just remind people in terms of your remuneration et cetera and he did tell us last time but I thought it was interesting and worth repeating since you got skin in the game etc..

Christian Milau: So the way that we’ve set this up for me myself and for the other guys started out to now four years ago here we made the commitment that we were an investment company so at the time we put in roughly two to half a million dollars with my continual investments and that we’re probably up to four to five as a management team which line up for us on a personal level as a big investment. ROSS I think in the last year put in about 60 million and so in turned the board and management were fully invested and these are not seed shares or cheap shares these are I in the market belong and block trades buying and financings and doing it reasonably regularly. So I’d say we’re investing alongside shareholders and our exit strategy is really long term. There’s no desire to be selling anywhere along the way here and remuneration on the other side of it. Ross is known to be fairly frugal as a shareholder and a chairman and we’ve taken that same sort of stance. We set out compensation to be roughly in that fourth quartile. So the lower end of the scale we’d like to see that performing in terms of share price particularly but also on the assets will give us a bit more return because we actually met goals and expectations. So we’ve we’ve done a little differently and we’ve not also linked at all to options which some people see as sort of free money. So you have your base remuneration which is fourth quartile then you have your own investments and then you have some long term incentives that generally are linked more performance right.

Matthew Gordon: This is actually I think it’s worth pointing that out and the read the reason is because you know people in Science Forums are subscribers that they go through the accusation. Well yeah they got some money in the game but they’re pulling pulling these big salaries down. So they kind of don’t care they can they. It doesn’t matter to them whether it works or doesn’t work. They are not truly aligned with us. But what you are saying is a significant part of your wealth is invested in this business you are directly lying because you’re buying in the market not options and people need to understand that.

Christian Milau: And probably on a personal level for me I guess a third to a half of my investable net worth is in this stock. Anything that I’m involved in as a manager or a board member I put my own money in because I believe. Why would you get involved in something and expect others to invest it if you told yourself. So right we take it personally in that sense.

Matthew Gordon: Right. So say I say the management’s interest to make the right decisions. You’ve also got Ross Richard also because lending is still in.

Christian Milau: Yeah. Yeah. He’s still own one percent anyway is that right.

Matthew Gordon: See you got some guys who know what they’re doing. I opened a few doors and you’ve got the capital to be able to deliver the strategy which you’re working towards. I suspect that will that’ll change as we find new assets or not. And you look you’ll adapt accordingly but. Thanks for the update. I think that’s been really interesting to hear. There’s a lot happened the refinancing is sounds fantastic. The new ambassador involved sounds. Well I think a lot of people would be very jealous of that. We look forward to seeing the you know the assets come on and the answers start coming. Being port.

Christian Milau: Yeah. No. Appreciate you talking again and maybe do it again in six months and we’ll keep keep moving forward.

Matthew Gordon: Thanks Christian, appreciate your time today. Good luck.

Christian Milau: Thank you.

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Superior Gold (TSX-V: SGI) – Getting Back to Basics, Chasing a New System for Improved Grade (Transcript)

We interviewed Superior Gold’s CEO Chris Bradbrook. He says that they are getting back to basics which will help them deliver a lower All In Sustaining Cost (AISC), and they are chasing a new system to make Superior Gold cash positive again.

Click here to watch the interview.

Matthew Gordon: Hello Chris, how are you?

Chris Bradbrook: Morning. I’m good, thank you and yourself?

Matthew Gordon: Not too bad. Where have you come in from?

Chris Bradbrook: Where have I come from? I was coming from Perth. I’ve been in London since Saturday.

Matthew Gordon: Jet setting life you lead. You’re going to tell us a little bit about Superior Gold. Why don’t you give us a two-minute elevator pitch on the story just to set things up and we can, perhaps, dive into it.

Chris Bradbrook: Well we bought this asset in October 2016. And essentially what we saw, what I saw, was an asset that’s been in continuous production for almost 30yrs. So, it’s not like we were showing up and saying, ‘we’re the smart boys in the room that know how to run it’. It obviously was a stable mine. It had been in Barrick for a number of years and they’d sold it to Northern Star, so it had kind of been buried within a bigger portfolio. The price was right. It was only AUD $40M. The infrastructure to replace would probably cost you about US $2.5Bn in today’s dollars. So, anything you did to grow it, it was all we could be quick, low capital intensity, had a large resource base. It was a sixth or is the sixth largest historic gold producer in Western Australia. So, I saw a tremendous asset with great opportunity that basically had been unloved. There’re so many examples where companies have taken an asset like that, and that’s what matters to them, and they work, and they make it into a success. So that, fundamentally, was why I like the asset, and a first-world location.

Matthew Gordon: You bought into a producer with existing assets in place. At a price you felt was reasonable.

Chris Bradbrook: Correct.

Matthew Gordon: Yeah, fine. Let’s deal with last year first. So, what happened? Almost a year ago today your price is about three times what it is today. There’re a few things that happened, why don’t you talk us through that?

Chris Bradbrook: Well, if I may, I’ll go back to the year before, first – 2017. So, our first 15mths of operation, we were putting about US $2M into the bank every month. So, we were running it as a business, making money. That was the philosophy. That’s what we wanted to do. And then in 2018, we started hitting a bit of a wall and we really struggled with the operations. And the grade dropped. We were trying to figure out what it was. And ultimately what it turned out to be is that the previous management had been essentially harvesting what Northern Star had left us, but not replacing it. So, there was no ability once we used up what was already planned out to… with flexibility.

Matthew Gordon: This must have been part of the data set which you inherited?

Chris Bradbrook: Yeah it was but, of course, you assume your management are replacing what they mined, but they weren’t. So basically, we had to pull everything apart last year to figure out what it took to do it. We changed over management. We put in more technical people.

Matthew Gordon: You’ve got a new COO.

Chris Bradbrook: Yes. So that, I would say, that was the final piece of the puzzle. Even with those changes it still wasn’t happening. So, we sent Keith Boyle, who is now our COO, down there for three months. So, I said ‘look, tell me what is going on?’

Matthew Gordon: What did you discover?

Chris Bradbrook: Well first question I asked him was ‘is it the ore body?’ Because if it’s the ore body then you’re out, game over. He said, ‘categorically it is not the ore body’. He said, ‘you’ve got the right people’. He said there’s…. you need to basically focus on a basic operational thing, it is absolutely fixable. And as a result of that, he spent six weeks, three months and he liked what he saw. So, when I offered him the job, he’d done his due diligence and said, ‘Yeah I want the job’, so I think that’s really a testament to the asset. And the deal is he’s based out of Toronto but for the next six months he’s living on site. He’s not coming home until he’s got it back on the track.

Matthew Gordon: So, let’s come on to him specifically in a minute and get back to what he discovered and what he thinks he sees in this. He’s looked at the operations. Your costs are quite high, the AISC is quite high. Certainly the 2019 numbers look quite high. I mean, is he looking at optimising that or is that something you think needs addressing or is it something more fundamental than that?

Chris Bradbrook: Well I mean in terms of the cost it’s all about grade. Because for the first 15mths we all running an AISC at about a US $1,000. So, we were making $200-$300 an ounce margin.

Matthew Gordon: But still, you know, mid-level rather than what …

Chris Bradbrook: It’s not the cheapest mine, but it’s not the most expensive. But really what drives it for us, is our unit costs are already low. So, it’s all about grade. You get the grade back to more like a 4g/t stope grade. That’s when you’re going to make money.

Matthew Gordon: So, when you said the unit cost, what do you mean by that?

Chris Bradbrook: Well, you know, what it costs you to move a ton of rock. We’ve got a very stable handle on those. We’ve got them low. So, what then drives it is how many ounces per gram are you going to get per tonne.

Matthew Gordon: But you can move volume of dirt efficiently and with the equipment you’ve got, and no need to change that. You just need to get higher grades.

Chris Bradbrook: Correct. And if you look at the ore, what I can say for the first 15 months we had a good solid plan and we were mining around 4g/t grade and making money. When that plan, the long-term plan kind of evaporated, for want of a better word, we basically had …go to the easy stuff, which is like 2.5g/t to 3g/t. And there’s loads of that. But it’s not making you the money. So basically, one of the first things Keith has done, is he’s gone ‘OK, let’s put together a life of mine plan (LOM). Where are the gaps?’ So, you actually now can… don’t mine that grade, mine that grade, because that’s going to make us money. So, it all sounds probably very simple but often these fixes are. You just need someone to come in with a fresh set of eyes and say… and I was just down there for five weeks. So, between me and him, we were basically worrying everyone to death. Just saying ‘look this is what we got to do, let’s get it back’. And it’s not like we’ve not done it, that’s the point. It’s not like we’ve had this for 2.5yrs and we’ve never made it work. We did. We did make it work. We just have to go back to what we did. And we’re already beginning to see the changes and it’s that’s simple.

Matthew Gordon: So, tell me about those, so you’ve made some quick fixes.

Chris Bradbrook: You know a quick fix is really getting people focused on the plan and maximising grade.

Matthew Gordon: So, what were they doing before?

Chris Bradbrook: Well as I said it was because they were, I think, they were so frantically trying to get stuff through the mill, they just go to the easy stuff. So there never was that long-term planning going on. And so, we’ve instituted that. For example, one of the things you want in an underground mine, you want three months of developed stopes laid out ahead of you. So, if something goes wrong with your plan, you’ve got an option. We didn’t have that. In the time Keith’s been there, we’ve already gone from no stocks, to a month’s worth of stocks. So, we’re already seeing that change. Then we found out that because they were being a bit, I guess, frantic with their efforts, they were diluting the ore. That was amplifying the grade issue. So, all these things we’ve been put in… just basically forcing the guys to basically run to a higher standard. And I guess you’d always like to think that people just do that. And initially I kind of wanted to run the company lean. And for a single asset, I was thinking ‘well why do I need a COO?’ Well it turns out, you know, when things aren’t working you do need someone like that, that can step in and say, ‘okay this is what needs to be done’. And at some point, when we’ve got this back on the track, we will be looking at other assets and you need a COO for multiple assets.

Matthew Gordon: Again, let’s come back to M&A as an option in a bit. So again, what are the other kind of quick fixes? He’s looked at the plan and he said, ‘here’s what we need to focus on’, is there anything else?

Chris Bradbrook: No. I mean when you say it out loud, it always surprised me how basic it sounds but often things in life are like that. But it is all about having the plan, stick into the plan, having the flexibility, so if something doesn’t work… So, in other words, you say ‘OK if this goes wrong, how are we getting it back on track?’

Matthew Gordon: Right. Any other new hires that you’re thinking about, having learnt that a COO is quite important to you?

Chris Bradbrook: Well no, not really. Because we’ve got all the people we need at site. Keith has made a difference, a big difference, no doubt about it. And we’re looking at the… what I was saying, the dilution. I mean that’s a big thing. But that…

Matthew Gordon: Dilution of?

Chris Bradbrook: …basically we’ve taken too much of the waste. So, we’re mining it more efficiently, see you mine to the grade you planned. Because that’s, you know, obviously, if you mine… if you’ve got 5g/t stope plan and you dilute it to 2.5g/t. I mean you’re not going to make… you might take more ounces out, but you’re not going to make as much money.

Matthew Gordon: So, you haven’t been sold a dud in this instance?

Chris Bradbrook: Oh no, not all. I mean, like I say I think one of the things to remember is, this is an asset that’s always been in production. Some assets…

Matthew Gordon: But have they mined the good stuff out of it? I guess that’s the question people are asking.

Chris Bradbrook: They’ve mined the easy stuff. But I think also part of the thesis was that we could make money with what we know is there. But there’s something else there. I mean I’m absolutely convinced of it. There’s got to be another…. it’s a big system. So, we will find more.

Matthew Gordon: So, what are you doing in terms of identifying this new system or potential new system?

Chris Bradbrook: Well I think part of it is really pulling apart what the asset is. I mean you’ve got a drill database that’s all digitised. And if you were to drill those holes today it would cost you a US $1Bn. So, it’s an incredible exploration tool. So big a big part of that is pulling that apart, figuring out.

Matthew Gordon: Who’s doing that?

Chris Bradbrook: Well we got our geologist at site and consulting geologists. And we are probably going to give the database to, there’s a group in Toronto called Gold Spot. And they do big data mining. And I think ours is a big-enough set, they’ll probably be useful for that approach. And so, we’re doing what we can because that absolutely is our best exploration tool.

Matthew Gordon: So, let’s talk about some of those longer-term strategies. You mentioned M&A as a potential, but do you feel that you’ve got to sweat this answer first, or can you concurrently look at potential M&A activity?

Chris Bradbrook: Well you need the currency right. I mean we’re so beat up we just don’t have the wherewithal to look at things.

Matthew Gordon: Can I ask how much cash you’ve got?

Chris Bradbrook: Well we got US $15M. Our enterprise value is US $20M. It’s insane. So, I mean the bet anyone would have to make is, OK if you believe what I’m telling you, that the fix is there. We are so ridiculously cheap that it is a really good opportunity. Right now, the market’s pricing is as though we’re going out of business, which just is not going to happen.

Matthew Gordon: Well I guess that’s why you’re here today, to answer those questions about what the future looks like. So maybe talk to some of those things. So, you’re going to sweat the existing data and try and see what you’ve got there and optimise all that activity. M&A is that a realistic opportunity for you, got US $15M of cash, where I guess it’s allocated towards current activities.

Chris Bradbrook: Yes, we’re very focused on the asset. However, when people show us stuff, I mean, you’ve got to be prepared. So, you’ve got to learn about what’s around so that when you are ready, you’re ready in terms of your knowledge. So, we definitely look at things and turn stones over. But our focus is the mine. But absolutely, I mean one of the things we learnt from this is, if we’ve been a multi asset company and we started hitting these issues, we could have pulled people from other operations to help us out. So that has showed us, just from that point alone, having multiple operations is a good thing. And investors are obviously asking for it. They don’t like… you know, you live and die by what happens at your one asset. And investors generally get uncomfortable with that.

Matthew Gordon: Would it make you nervous, I mean given you’re, you say, undervalued, that’s a claim I think most people make.

Chris Bradbrook: If a CEO doesn’t think his company is undervalued, he shouldn’t get out of bed in the morning. But we are.

Matthew Gordon: You are the one? Great. Does it worry you or make you nervous about the cost of raising capital in this market with your current situation to do M&A activity, would you feel that you would look at optioning stuff, deferred payments. I mean, how would you tackle an M&A process?

Chris Bradbrook: Yeah, I mean you’re right. I mean, where we are right now our cost of capital is high. But like I said we’re really viewing M&A more now as we just want to know what’s out there, so that when we are in a position to do it, we’ve already done our background work. We’ve already talked to potential partners. But the first thing is we’ve got to get this sorted out. Get the market believing it. Get a share price that reflects it and allows us to actually go do stuff.

Matthew Gordon: Okay. Right. So, you’re looking at optimising the current processes, operations, hope for higher grades. Being able to identify higher-grades. Reduce that AISC down. You feel with this new COO, you’ve got the right leader for the technical team in the country. And we should be positive about the future. Is that the correct message?

Chris Bradbrook: Correct. Absolutely. But yes, totally focused on fixing the operation right now.

Matthew Gordon: Let’s talk about the team. Just tell me a bit about you. What’s your background, relevant to the operation?

Chris Bradbrook: My background?  Well technically I’m a geologist by training. It’s been a while since I’ve actually done geology, so I worked in the industry from 1980 to 1995 and then I was an analyst for about six or seven years. And then I went back into industry. I was V.P. Corporate Development for Goldcorp, but this was when all they were was the high-grade Red Lake Mine. And then when I left there, I formed New Gold. Which was a very different company to what it is now. It was just the New Afton Mine or deposit at the time. So, we raised the money to build that. And when I left there I started up a company called Crocodile Gold. Which really kind of led me to all my knowledge base in Australia. But that became Newmarket Gold, now part of Kirkland Lake Gold and the Fosterville Asset, which drives their valuation, was part of Crocodile Gold. And then when I left there, I was looking for something else to do. And ultimately this was what came out, Superior Gold.

Matthew Gordon: So, you don’t sound very Canadian.

Chris Bradbrook: No, well, I’m a Canadian technically because I’ve got my citizenship there.

Matthew Gordon: Okay. So, you’re based over there. From the U.K. originally. But with an asset in Australia.

Chris Bradbrook: Correct. Yeah, I like first-world assets. I really like Canada, Australia and certain parts of the States. So that is really our strategic focus.

Matthew Gordon: There’s a new COO on board. You told us a little bit about him in terms of what he’s done, so what is his background?

Chris Bradbrook: Well, the press release outlines this. He’s worked for small and large companies. North America, internationally.  He’s done everything from operating as an underground manager, to a general manager, to a COO to feasibility studies, raise money. So, he’s got an MBA too, he’s is a mining engineer. So, he’s got lots of strings to his bow. He understands all the various parts that matter to a public company.

Matthew Gordon: But you’ve got him focused on cutting costs and finding ore?

Chris Bradbrook: Well you just look at the problem in front of you and say this is what we need to do. So, and again like I say, he spent six weeks at site knowing full well what I needed and still said ‘you know there’s a tremendous opportunity, I want to be part of it’.

Matthew Gordon: Okay. And so, who else is on the team? If we look at these constituent parts for companies of your size. Technically you need to know what you’ve got. Whose looking after the financing and finances of the business?

Chris Bradbrook: One of the financiers is our CFO, Paul Armstead.

Matthew Gordon: What’s he’s charged with doing? What have you asked him to do?

Chris Bradbrook: Well quite simply, is make sure you know where the money is. Don’t do anything stupid with it. And if we are in a situation where we need money, give me the heads up well in advance. In terms of actually raising money, we’ve had to do it, that typically will fall to me.

Matthew Gordon: Tell us a bit about that. So, your shareholders are what, institutional at the moment?

Chris Bradbrook: Largely institutional. Canadian, some US. One or two in Europe but basically, it’s a North American shareholder base.

Matthew Gordon: Any names in there that we’d recognise?

Chris Bradbrook: Yeah, I mean well, Northern Star, our biggest shareholder.

Matthew Gordon: That’s presumably part of the deal?

Chris Bradbrook: Part of the deal it was. Century Select which is now CI Investments. They are a large shareholder. Donald Smith.

Matthew Gordon: They’re a Canadian promoter.

Chris Bradbrook: Donald Smith’s out in New York.

Matthew Gordon: Sorry, I meant the CI guys…

Chris Bradbrook: Well I wouldn’t say a promoter. I mean they’re a big blue-chip Canadian fund. I’m sure they be a bit worried that you called them a promoter. So those would be some of the big shareholders. We had BlackRock at one time. RBIM. So, we’ve had actually a pretty good list.

Matthew Gordon: How big is your retail following?

Chris Bradbrook: I would say it’s reasonably big. I would say we’re probably about 10%-20% retail.

Matthew Gordon: Again, mainly Canadian?

Chris Bradbrook: And North American and Canadian. Yeah, I mean every now and again I’ll meet someone from Europe who has picked the story up.

Matthew Gordon: Is there much liquidity in the stock at the moment?

Chris Bradbrook: It’s better. When we first start out, I mean, we were, because of those bigger shareholders, there wasn’t a lot of big float. So, liquidity early on was tough, but it’s better now. I mean we’re not trading millions of shares every day but a few hundred thousand usually and then every now and again you’ll see some blocks.

Matthew Gordon: And those are clearly the institutions trading in and out. But what’re the retail guys doing for you in terms of… do you think people understand the story?

Chris Bradbrook: Yeah, I would. I mean because, I’ve done this a few times, I’ve always valued retail. I mean, one of the challenges of retail is making sure they understand what you are by. I think from the questions I get from retail investors, they do actually understand.

Matthew Gordon: What questions do they ask?

Chris Bradbrook: Well they ask the same things you’re asking, which says to me they’re not off in some strange place asking questions that aren’t relevant. They absolutely understand what matters to us. They ask the same questions institutions do. Which is the same questions you’re asking, because it all boils down – there really are two or three key questions for our story.

Matthew Gordon: Absolutely and that people need to believe you can deliver against those.

Chris Bradbrook: Oh absolutely. I think I’ve got a decent track record of doing what I say. And I am actually totally confident that we are fixing this.

Matthew Gordon: Fantastic. So, who else is on the board that we need to know about in terms of active members of the board.

Chris Bradbrook: It’s a very small board and it was done deliberately. We’ve only got five people on the board. And I think with… you know at this basic level the board’s job is based and make sure I do my job. Or management does their job. But I think with a smaller company you kind of want people on who are willing to roll their sleeves up and help you. Because we just don’t have the numbers of people. So, our chairman is Marc Wellings who is former investment banker at GMP. He ran the London office for a few years as well. We’ve got Tamara Brown who is a V.P. Investor Relations at corporate development for Newcrest in the Americas. There’s myself. There’s Rene Marion who was chairman of Richmond. He was former Barrick and Erico. Really good mining engineer understands capital markets. Well, he was the chairman of Richmond when it got sold. It went from $30M to a billion dollars. So, he’s seen this movie before. And he worked for Barrick on this asset. So, he knows the asset.

Matthew Gordon: So, but is he an active participant?

Chris Bradbrook: Yes. Yeah, I talk to all of them regularly because I use their expertise, like Rene. I mean very important for us as an operator. So early on when I was trying to figure out what was going on, I said well, what would you do? And actually, Keith Boyle came through a recommendation by Rene, when I said well ‘who you know out there who would be a good person to take a look at this’. And then we’ve got one nominee from Northern Star.

Matthew Gordon: Yeah. And are they, I mean, they obviously must know a lot about this asset. And the fact they’ve stayed in says something.

Chris Bradbrook: I think they’d like to see us grow.

Matthew Gordon: Right. And it wasn’t just like option money … we’ll just do a deal, take a piece of shares.

Chris Bradbrook: We could have raised… we raised enough money, we could have just paid them out cash. There were a couple of things. I think they like the opportunity in the business model. They thought they could make more money. They saw that we could be a building block, I believe. And selfishly for us, I knew that the number one question I get asked was, well why would Northern Star sell it. So, having them in with someone in the Board.

Matthew Gordon: So, go on then. What’s the answer?

Chris Bradbrook: What’s the answer to that? Well I mean, you got to look at… because this what we’re doing here is really kind of what they built their business model on. But within about three months they bought four mines. They bought this one. A mine called Jundee in Australia, a mine called Canonabell in Australia, and mine called Candana. The three of them they got running the way they wanted them very quickly, so this became a bit of a head-scratcher for them. So, they decided to run a process…

Matthew Gordon: In the sense of what?

Chris Bradbrook: It just wasn’t going where they wanted as quick as they wanted to. But they actually gave us the entire operating team that we needed. So, the team that made a success for us when we took it over were the people that had been working for them previously. So, they were very important to us in getting it working.

Matthew Gordon: Thanks for that. So, let’s talk about last year in the context of, how do you think it went? What would you have done differently? I think you’ve answered some of these questions already. Can you try and summarise that for us?

Chris Bradbrook: Well look, I gave you the reasons why it didn’t go the way we wanted. So, what would I have changed? Well I guess like, as in all these things, you say well you know, early when it first started going wrong, we probably should have been more dramatic in trying to fix it immediately. But you sort of think the next quarter wasn’t bad. Okay maybe now we’re back on track and then late last year, you could see it was beginning to go off the rails again. So yeah, I think, if I really knew what I know now, I would definitely have moved faster.

Matthew Gordon: Hindsight mining…

Chris Bradbrook: Well yeah but, you know, we were asking all the right questions. I had the board involved. And we were, ‘well what is this, what do you need’. And yeah, you know that really is hindsight. I mean it’s just like you’re peeling away layers of what it takes to get there.

Matthew Gordon: Okay. And again, you’ve dealt with this slightly, this year what should shareholders be looking out for in terms of what you’re doing?

Chris Bradbrook: Well quite simply, on a quarter by quarter basis, they just need to see that we’re improving how we’re operating. We’re back to making money. That is simple as that.

Matthew Gordon: So, making money or cash flowing?

Chris Bradbrook: No, making money because, I am all about free cash flow. And like I said when we had the asset going the way we wanted, we were making money, and I mean making into the bank US £2M a month.

Matthew Gordon: Get back to that as quickly as possible….

Chris Bradbrook: Yeah. And you know we built a second mine, an open pit mine, all internally generated. We’ve never raised money since we went public. So, we must be doing something right.

Matthew Gordon: Debt free. So, there’s no kind of funky financing, sitting in the background, looking to clobber you?

Chris Bradbrook: No, and if you look on the balance sheet, you’ll see a small number for debt. It’s because we’ve leased financed the equipment. And then it just shows up as an ongoing cost.

Matthew Gordon: Very normal. So, give us your five reasons why you think investors should be looking at you and investing?

Chris Bradbrook: Well look. First world, that’s a start. Your first world location. A substantial asset where there’s tremendous exploration potential. 100,000oz producer with an enterprise value of US $20M. We will be going back to free cash flow. We’re one drill hole away from a discovery. At some point we will…. we’ve already expanded the Reserves and the Resource. But if we find something new high-grade. I mean there was an ore body there at one time. That’s part of our mineralization called Timaur. And it was a 1Moz of 0.5g/t. So, if we found another one of those. Yeah, we’d be happy. But that’s…but this is what happens with these assets. I mean Fosterville, I mentioned before, Kirkland Lake Gold. That was 3yrs ago a refractory ore body at 4g/t and everybody ‘knew’ it was rubbish. They drilled some holes and now they’re mining 50g/t. I’m not saying we’re going to find 50g/t but I’m just saying that’s what happens to these systems. If you try and understand them, you drill in the right place, there will be extensions. They don’t just end. And then this system, this is an immense system. It really is.

Matthew Gordon: Okay. I appreciate your candour and honesty in dealing with these issues. To put your hand up and say ‘we’ve had issues. We acknowledge that, and we know what they are. And we’ve put things in place to fix those. The investors should bear with us and look forward to what we’re gonna try and do this year.’ I think that’s quite a positive message.

Chris Bradbrook: Yeah. We’re telling them they should do something, clearly, it’s up to them. But I look at our share price and it’s been a downward trend since last April (2018).

Matthew Gordon: You think there is some upside there?

Chris Bradbrook: Well US $20M enterprise value for the story I’ve just told you, usually you get those valuations because people think you’re going out of business.

Matthew Gordon: You’d get that for the equipment, wouldn’t you?

Chris Bradbrook: Oh yeah. I mean look. You’d sell it… if we sold the asset today, you’d sell it for more than that.

Matthew Gordon: Right. Well look Chris, thanks for your time. I appreciate that. Do come back and keep us abreast of the story as it develops with the new plans, especially with the data mining element. That sounds very, very exciting to me. Thank you very much.

Chris Bradbrook: All right. Thanks a lot.

Matthew Gordon: Appreciate it.

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