Ross Beaty – Mining And Investment Expert Shares His Secrets

A photo of Ross Beaty

Crux Investor recently had an incredibly informative conversation with Ross Beaty, Mining Investor and Entrepreneur.

Ross Beaty is a renowned mining mind. Investors in the mining space will likely already be aware of his highly-successful career. Investors need to learn from the best, and that’s exactly who they will hear from on CruxInvestor.com.

Beaty shares some of his business strategies and secrets. He also gives our uranium viewers plenty of inside knowledge about the uranium sector and what to expect from the rest of 2020.

This is a great interview that we’re very happy with. We think you will be too.

We Discuss:

  1. Nuclear Fuel Report Announcement: Opinion and Expectations
  2. Time of Benefit to Uranium Miners: Anything to Look Forward to?
  3. Building the Reserve: What it Means for Producers
  4. Supply and Demand Fundamentals: A Singular Source of Clarity
  5. Price hits $30: Will it Hold, Rise or Drop Away?
  6. Cameco: Contracts, Terms and Delivering Results
  7. Identifying Winners and Losers: Knowledge of Putting Together Deals
  8. Mood in the Market: Optimism for the Future
  9. What Will Make Generalists Come Back to the Uranium Space?

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

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

A photo of Ross Beaty

Ross Beaty – So You Want to be an Entrepreneur? (Transcript)

A photo of Ross Beaty

A conversation with Ross Beaty, Mining Investor and Entrepreneur.

Which entrepreneur wouldn’t want to replicate Ross Beaty’s business success? It wasn’t always so easy for the young Beaty, who tells us about the mistakes and lessons learnt. Beaty makes time to talk us and shares some of his thoughts on a variety of topics outside of mining too. We start with his childhood and early years. What three things are important to him? What shaped his thinking and drove him into mining? We talk about his management style today and what he looks for in manager of his projects.

And let’s be honest, if he puts his name to a project it has more chance of success than most as he can bring money to the table. He appreciates that but there is still a lot to do to be able to build a globally significant mines. But you have to like risk.

So when is he going to retire and what’s is he going to do? And what is his take on Naked Shorting?

We discuss:

  1. Nuclear Fuel Report Announcement: Opinion and Expectations
  2. Time of Benefit to Uranium Miners: Anything to Look Forward to?
  3. Building the Reserve: What it Means for Producers
  4. Supply and Demand Fundamentals: A Singular Source of Clarity
  5. Price hits $30: Will it Hold, Rise or Drop Away?
  6. Cameco: Contracts, Terms and Delivering Results
  7. Identifying Winners and Losers: Knowledge of Putting Together Deals
  8. Mood in the Market: Optimism for the Future
  9. What Will Make Generalists Come Back to the Uranium Space?

CLICK HERE to watch the full interview.

Matthew Gordon: Hey Ross, how you doing, Sir?

Ross Beaty: I am well, thank you. How are you?

Matthew Gordon: Yes, not bad. Not bad. Surviving. Holed up. What about you?

Ross Beaty: It is a very strange world: I haven’t travelled in 2-months now and it’s a little bit, you know, you go a little bit stir crazy, but it’s kind of nice where I live. I live on an Island. I’m kind of self-sufficient here. You know, we are suffering through it as best as best we can and it’s not a bad lifestyle, to be honest. It is good for the planet.

Matthew Gordon: Yes, it is good for the planet. It is strange to be getting withdrawal symptoms about not being in an airplane. I never thought I’d feel that. Well, thank you very much for joining us today. A slightly unusual one too. We’re not here to promote one single company. We are usually grilling CEOs about their performance. So, we are going to talk about you today. People are interested in you and where it all began. So, we have got some nice gentle questions. Are you ready?

Ross Beaty: Okay. I am ready. I’m intrigued.

Matthew Gordon: We are interested in how people get to where they are, what sort of made them the man they are today? And so, I want to sort of start off from sort of understanding where you grew up, what was life like as a kid?

Ross Beaty: I had a pretty good life as a kid. I grew up in a kind of traditional Canadian middle-class family. My dad was an entrepreneur in the lumber business and I was just, I was always interested in the outdoors: I just loved hiking and camping. And so, I gravitated to that from an early age and I wanted a job working in the outdoors all the time, so I became a geologist. And then, after a few sessions at different universities, I started my first company right out of, pretty much out of university. It was called BD Geological, and I ran a little contract geology company and built that up. And then I started my first public company in 1985, which was called Equinox Resources, and then I’ve just had a whole stream of companies ever since then. My first company lasted nine years and I sold it to a big US mining company and started a new one the next day. There has just been a whole succession. I think I’m on number 15 now, so it’s been a lot of fun and a lot of travel, which I love. And working with great people who’ve helped me build these companies.

I was a good geologist, but I also found I was a good salesman; so, I could sell shares and I could tell stories and part people from their money. And by a lot of good luck as opposed to good management, we found Gold mines and Silver mines and we built companies and so they made more money than they gave me and they returned the favour; every time I started a new company, they backed me again and again. So, it has been a happy and successful career, which I’m pretty much at the end of now, Equinox Gold will be my last company. And it has been a great run, a great journey and a tremendous amount of fun.

Matthew Gordon: Right. Okay. Good summary. This could be either the shortest interview I’ve ever done, or we can go back, I want to get back to your childhood. Okay. So, I’m fascinated because I’ve got 4-kids, and they have each have different personalities, and I know who’s probably going to do what. They’ve got very different desires and needs and personalities. So, when you were growing up, your dad was an entrepreneur, you have had an entrepreneurial life, and the question I’m asking you is, what influence did your parents have on you, or did your father have on you when you were growing up? Or did you feel it is innate in you? You were always going to be a ‘salesman’, as you put it?

Ross Beaty: Yes. It’s hard to say really; I have 2 brothers and I had a sister, she died when she was young, and my dad actually died when he was young. He died in 1973, I think. He died when he was 55 of a car accident. So,, I didn’t have anybody to bounce ideas off when I was in the business world. I would say I just got his genes, and we had a pretty lucky early life because I was given a tremendous amount of freedom. I was always a hyperactive little shit. I was always busy running around and constantly arguing with people and just…you know. So, my mother’s solution was to just kick me outside and call me back when it was time for meals.

I’ve always been pretty active. I’m going to say I’m pretty impatient and selfish and greedy and all those things that make great entrepreneurs. But I would say no; my 2 brothers, I have 2 brothers say none of them became entrepreneurs. One is a great engineer and he worked for a company through his life and the other one was a printing salesman, so the apple didn’t fall far from the tree in my case, but in their cases, they were just sort of living ordinary middle-class lives. So that was, my personality, I guess, was sufficiently different and that is where I went. And I would say I made a lot of my own mistakes. I never had a mentor or a particular guiding light when I was building these companies. I just, it was a school of hard knocks and like I said, I made a lot of crazy mistakes, and in hindsight, crazy, but at the time they all seemed very clever and luckily, there were more good decisions than bad decisions and the outcome was positive.

Matthew Gordon: Okay. That’s interesting. Do you think your father would be proud of what you’ve done?

Ross Beaty Yes. Oh yes. Well, of course, he would be very proud and of course, my mother. My mother always was; of course, mothers are proud of chainsaw massacres. So ,mothers are always proud of the children, whether they are thieves, rapists and murderers, but fathers are a little tougher, and I know he would have been proud of me, for sure. It has been a great career and I think I’m very proud of having done it without having to lie and cheat and steal. And some of the short-term thinking that certain people in this industry have followed over the decades, I’ve been involved with it, and it never usually works out very well. It’s not hard to do things right. You do need luck. And I got luck. And with that luck plus working very hard and being very driven and motivated, it worked out; without any of those ingredients it would have been harder.

Matthew Gordon: Well, I’m intrigued in terms of what are the sum of the parts of the man, right? Because a lot of people are watching this, they will be looking for clues. They may be starting out like you now, we all once did, looking to sort of see, do they have the right characteristics and so forth? But you say you’re a workaholic. I think I just heard that was one of the criteria there. Does that leave time for your family?

Ross Beaty: I didn’t say that.

Matthew Gordon: You are not a workaholic? You work hard?

Ross Beaty: No, no, I’m not. No, I’m not. Especially when we had kids, I spent a huge amount of time, and for me, it was always about juggling; it was always about having three balls in the air at any one point in time. One ball was my business, for sure; I wanted to make sure that was healthy and thriving. One ball was my family. I have 5 kids, I have 1 wife, we celebrate our 40th wedding anniversary in 10 days. And I have me, and as long as I’m happy, my family is doing well and my company is doing well, it works. If any one of those balls drops, it’s a disaster. So, I spend a certain amount of time looking after the me, and me; I really am driven to be an outdoor person. I love skiing and hiking and camping and canoeing and traveling and I just love moving around, so I made sure there was that part of my life that I was getting a lot of personal fulfilment from.

The businesses were all doing well; that required a lot of work, for sure. But it tended not to include work on the weekends or in the evenings like a lot of true workaholics do. And it was very important that we had a strong family, and we have got a strong family. We always have had, I’ve got a wonderful wife and it has worked out quite well for everybody I’d say, in terms of that mix. I think if you lose one of those ingredients, everything else becomes more difficult. And so, I wanted to try to make sure all those three pieces of the personal puzzle were healthy, and it’s been a successful life because of that.

Matthew Gordon: Fantastic. Nice balance. Well, let’s get on and we will stick with the work bit now, okay? What type of manager are you?

Ross Beaty: I am a very decentralized manager. I like to work with smart people and I really give them a lot of runway to do their own thing, and I just try to help manage them and we make mutual decisions. I also try to be quite hands on though; I try to visit all the projects and try to have a complete understanding, technical understanding of what’s going on. And so, I can help really inform the decisions with personal experience. I’ve got to see things with my own eyes. I’ve got to touch the ground, go underground, for example, look at opportunities personally before I can really get a good sense of them. I can’t do it from reading a book, or a report or online.

Matthew Gordon: Okay. And you talked about mistakes that you’ve made along the way, and we say to people, you probably learn more from your mistakes than you do from the successes. So, what are the big moments you think, boy, I’m not going to do that again? Or maybe I’ve now worked out what I should be doing.

Ross Beaty: Yes, well, like I said, I am a quick study. I do learn quickly. And I, when I realise I’ve made a terrible mistake, I try not to repeat it. Instead of that I make other new mistakes, and that’s kind of what life’s all about, right? It’s just a one-way street; every time you come around a corner there is this sort of new situation that may or may not be something that you’ve experienced already. And the world changes so you can’t always apply experience that you’ve learned 30 years ago to what’s going on today. It’s a different world. We have different markets, different investors, different ways of looking at things, different social issues, all kinds of things that are different. So, you know, there are a few ingredients though that I have learned and number one is working with nice people, good people and if you can’t get along with somebody, change. You have goy to cut quickly. The quicker you cut, the happier you’re going to be and the happier they’re going to be.

Another is to focus on scale: look for big projects, big opportunities, big ideas. I spent 3 years of my life trying to permit a 50,000oz a total Resource Gold deposit in California back in the late eighties and it was 3 wasted years. It was ridiculous what we tried to do. So those kinds of things are just a waste of time, a waste of energy.

And try to be opportunistic. In other words, set yourself up for things that are going to happen as to things that are happening today. I’ve done that quite frequently in my career and it has always been very successful, particularly trying to look at long-term commodity price trends that will eventually drive markets.

I got into the Gold business in the eighties. It worked out well. I got into Silver business in the nineties, the Copper business in the 2000s. I went into renewable energy in late 2000, in 2008, I started a renewable energy company. Then I got back into Gold in around 2015, 2016, and that has been a pretty good run. So, I try to look at what’s going to happen in future trends as opposed to what’s happening today. The best opportunities are those where you’re taking advantage of weakness elsewhere, or markets that just seem to have it wrong. When I started a Copper company in early 2000, a group of Copper companies, nobody wanted to know the word Copper, and that was when I was buying like a drunken fool. I was buying everything with Copper that I could find. And sure enough, Copper went from an all time low to an all-time high in just 4 or 5-years. And every one of those workflows, Copper deposits I bought became incredibly valuable. We sold them all for nearly USD$2Bn. So, it is stepping back, it is reading a lot. It’s traveling a lot. It’s looking at what’s going on in the world and what’s going to go on in the world, and making a prediction and then trying to set up a business that takes advantage of that trend and takes advantage of that.

We live in very cyclical markets: bull markets beget bull markets. Bear markets beget bear markets. That’s why we have these cycles. And so, if you’re in a bottom of a cycle, you want to be preparing for when the cycle turns and goes up. Those to prepare, who are lucky enough to have the capital to prepare themselves and get the assets that will do well in an up cycle are going to benefit disproportionally, and vice versa. If you are at the top of the cycle, that’s when you want to be selling. That’s when you want to be turning to cash up, to try to take advantage of when the cycle changes and it goes down again. These are multi-year events, but they always happen, they always will. We are in a down cycle today in many respects because of this COVID crisis. This is the time to be loaded up on equities and buying things that other people have destressed and have to sell. That’s just how these markets work. So that’s worked very well for me, and it’s a kind of a basic thing. It sounds very easy to say, it’s rather more difficult to do.

Matthew Gordon: Yes. It does sound easy to say, but people talk the story of being, about the contrarian philosophy for investing, but when you’ve got money, it feels like it’s slightly easier to actually deliver on that. Because we saw this with Uranium and Gold previously, and obviously with the debt which happened with the market reset, people who had been talking very aggressive, contrarian type language were terrified to actually place a bet. I’m talking retail here, okay. They were terrified. They were asking each other, where they had been bullish before, they were now asking other people’s advice, should I, should I? I just find that kind of interesting. It was the definition of a contrarian environment, but the human psyche comes into it when actually being, you know, the last pitch of the innings; you have got to place your bet and a lot of people didn’t. I thought that was interesting.

Ross Beaty: Right? It is very easy to say and very hard to do. And of course,  I mean, there’s different ways to do it of course. And it is a very different world between being an investor where you can buy and sell someone else’s company anytime you want; you are by definition a short-term investor because you can sell anytime, and nothing will happen to you or the company. If you are on the other side, like I’ve been, which is basically a developer most of my life, I mean, I’ve been an investor at different times, but mostly I’ve been a developer of my own businesses, and I only sell once or I don’t sell at all. When I sell once, it means I sell the whole company, and I’ve done that, I don’t know, 10 or 11 times with different companies I’ve started, but you have to hold for the long-term.

So you’re building, you’re investing in projects or you’re investing in people, you’re investing in ideas when you start these companies from scratch, and you try to get your timing right; and so you want to start them at the bottom and sell them at the top. And that’s actually something I have done. And you have to have a lot of courage of your convictions because there’s always people who say you’re an idiot; you are doing the wrong thing, you are selling out at the wrong time. There’s always people who second guess you. And sometimes they’re right. Sometimes you’re right. But you just have to have the courage of your convictions and you have to have enough control of your business to actually make those decisions and you’ve just got to do it. And so whether you’re a nurse or you’re a company builder, you have to think long-term and you have to play these cycles in our business, I’m not saying it’s the same for selling a brand or some other service to somebody, but in the commodity game it is a cyclical business and you can actually do very, very well if you pick the cycles right.

But you don’t have to necessarily have a lot of money when you’re in the development world. Like when you’re starting these companies, I mean, I have lots of money now and I had money starting probably, well, after I sold my first company, Equinox, I had a bit of money but when we got our Silver company going we didn’t have a lot. We had very, I would say, very supportive shareholders and they financed us again and again at, at good prices and with that money, we were able to build up an asset base that was very successful, I guess, when Silver prices took off after 10-years or 8-years, it took a long time. But finally, they went and boy, everybody was happy when they went.

I mean, I was completely wrong. I thought Silver, when I started my Silver company in 1994, I had the confidence of ignorance and I was able to sell the idea that Silver is going to the moon. It started at USD$5.20 I think when I started Pan-American in 1994. And I was saying to everybody, by the end of the decade is going to be up to USD$10 and everything we buy now is going to be ridiculously valuable. And of course, the predictable happened: by 2000, at the end of the decade Silver was USD$4 p/oz. It was at an all-time low in real terms, and yes, we had scrubbed together a company that actually had a whole bunch of assets and after a near death experience, a very near-death experience starting in 2001 where we almost went bankrupt. Luckily right after that, the Silver base took off, we had this wonderful run of the super-cycle in early 2000: Silver went from that USD$4 price in 2000, in the fall or the winter of 2007 it went all the way to USD$48 an ounce, 6-years, 7-years later.

So it was a glorious run. We were well positioned for the run. We had the asset base for it. Yes, we had almost died, but we were lucky enough to just come out of that all-time low with that tremendous asset base, a lot of goodwill from shareholders, a good name as being a primary Silver company, one of the very few in the world, and our share price went from USD$3 a share to a nearly USD$50 a share during that glorious run. So, it was a happy time. Maybe if it had taken another year or 2, we might’ve gone bankrupt and that would have been the end of the story, but we didn’t.

Matthew Gordon: Yes, it’s amazing; those moments and the paths just split right or left and there’s a lot of very successful people who can remember that moment where it could have gone either way, a very, very different story, very different outcomes.

Ross Beaty:  Forks in the road.

Matthew Gordon: Forks in the road, right? So you must appreciate the power and the value of your name being associated with a project. I know you told me Equinox is the last hurrah, but for last few years if you’ve been involved in a project, you put your money in it in some capacity or other, people follow you. There’s a value to that because the view is, there is a successful guy. If I can just get a bit of what he’s got, it’ll be okay. Right? So, do you mind if we sort of delve in and sort of see how true that is, what have you done?

Ross Beaty: Well, it is true. I mean there is no question that success generates followers and people who like to get onto your bandwagon. And in this business, because I’m a very public person because all my company investments, almost all of them are public investments and whatever I now buy something, it’s not very meaningful to me unless I have a fairly big stake in it. I’ve a multimillion dollar stake, 10% plus. I don’t care if I’m showing up as an insider or not. In many times I am. And if I am, it is very public. And so, you got a lot of people who will buy based on my name or Lukas Lundin’s name or Richard Warke’s name, or any of these guys who have been serially successful, and they’ve made a lot of money. Not always, not every company, there’s been some dogs in the portfolio, but there’s been more winners than losers. So, there are people who do pile on. And that’s true.

That’s particularly true for when I have been more traditionally an investor in companies; where I will look at a hundred companies and pick two or three to actually do a private placement and then trust the management to build value, add it again, that has been more successful than unsuccessful, but I’m not doing that right now. I’m not hardly doing that. I’m doing that a tiny bit. Mostly right now, 90% of my world, my business world is actually Pan-American Silver, Equinox Gold, one or two little private companies that we have that aren’t public, but we’re working on quite hard and the Lumina group, which comprises today two companies, or two and a half companies within a group that has been close with me for 15 to 20 -ears, a very, very good management team and I’m really backing them financially versus being too active in the companies. But I do try to help out where I can. I would say that’s still in my orbit as a developer versus an investor where I have absolutely nothing to do with management.

Matthew Gordon: Can I just ask? Who are the guys in the market, apart from your own team, who you admire at the moment, when you look at either CEOs or management teams or companies, who do you admire and go, actually, they’re doing a good job?

Ross Beaty: One of the realities in this business that I’m in, because I’m so much in the trenches with my own companies, I actually don’t, I don’t really listen to other presentations. I mean, I know all the guys very well, but I don’t really know the fundamentals of their business. I have an enormous regard for Randy Smallwood of Silver Wheaton or Wheaton resources. He’s a very smart, very lovely guy, wonderful guy. I have a tremendous amount of time for Lukas Lundin. He’s a dear friend of mine, smart, driven, a huge amount of fun, generous competent, just great. And he has very good business sense and works with really good people. And so, his companies are strong and they’re strong for a reason; they are very well led. Beyond that, Donald Lindsay at Tech, I have enormous admiration for Don. He’s a smart guy. He’s a great leader. People love working with him. Core investment for me. I have a lot of time for Tech. Those are a few names.

Amongst the juniors, I just don’t know them well enough to really comment, to be honest. I don’t have a, I mean, I know certain people in certain companies, but I don’t know enough about the companies themselves to really give you a sense of who I would back.

Matthew Gordon: I guess the bit I wanted to understand from you, obviously, was, maybe not now because I appreciate you’ve just explained where you are now, but let’s say in the last 10, 15-years, has that track record, has that money, allowed you to be a little less right or a little bit less choosy about the project because you know that you following your cash would make it work?

Ross Beaty: How has it been? How’s it made me less choosy? I think when you are an investor, you won’t have a big win on every single investment. The more money you have really doesn’t matter; a lot of money, a little money. What you, what you luxuriate in, when you have a lot of money is, you can afford to be wrong again and again, and you’re not going to really change your lifestyle a lot. And small investors simply can’t do that, which is a big difference to me. But having said that, I don’t like losing money. I don’t like looking stupid. I think there’s a lot of ego in all of this, don’t forget; a massive amount of ego in everything that I do. I always want to be seen as being smart and right. It’s just an unavoidable intimate, personal characteristic, Carl Icahn is the same and anybody who’s a public figure who goes after companies and has as a brand or a cachet, they always want to be right. And that’s a very natural human, human instinct.

So, whether I’m a developer or an investor, you could say the same thing; I’m always trying to hit for the fence, trying to make a home run of every single thing I do. And most of the time you swing for the fence and you might get a bunch, or you might run halfway to first and get thrown out, but often you do get that home run. I’ve had a lot of home runs in my career, a heck of a lot of home runs. They feel fabulous.

Matthew Gordon: Yes, they always do, right? That’s why you get out of bed in the morning. But do you think if someone took all your money away today and you were, you know, the young Ross Beaty in today’s environment, could you do it again? Is it a different world now compared to back then?

Ross Beaty: Yes, yes.

Matthew Gordon: You could do it again?

Ross Beaty: Yes, yes, it’s definitely a different world. It’s definitely a different world, but yes, you can do it again. I mean, all the ingredients to success are more than anything: hard work, a lot of drive where you make the phone calls, you don’t wait for the phone to ring, and that’s true in any business, I think, in any sector; it is the people who have that extra bit of drive, not necessarily any smarter than anyone else, but just that drive. If I’m looking to hire somebody, that’s what I’m looking for. Somebody who’s got drive, somebody who’s got an interest in what they do, a motivation to work hard. And then you put in place the ingredients for success. In our business, you put in place the opportunity to have lots and lots of drill holes, and because when you drill, usually you get bad results, but every so often you get good results and it’s a statistical thing. Obviously, you want to drill good projects, but not all of them are good. That’s the nature of the business. But boy, if you get a success, it goes straight to the bottom line. It’s real immediate capital value. And so, you want to position yourself for that kind of success if you’re in the exploration business. And if you’re in the mining business, you want to watch two things: you want to watch, obviously, the size of the project you remember because the bigger the project, the more valuable it’s going to be for you, and you want to try to get your timing rate on the commodities.

So, if you start a business at the top of the cycle and the cycle goes against you for four years, you are going to have more and more difficulty funding your dreams and trying to build any kind of value at all. It’s just going to be a, it’s almost a losing proposition. It’s very difficult. Whereas if you started at the bottom and you get your direction right, it’s going to be a pretty happy time because even if you buy something that is a marginal project, or acquire or discover something that is quite marginal at one point in time, the price rises, it has real tangible value and you can sell it, you can develop it, you can do all kinds of ways to realise on that. You don’t see that kind of thing in other businesses. That’s what makes the mining business so beautiful when things go well and so terrible when they don’t.

Matthew Gordon: I think that’s right. I think that’s right. But a few things you said there, I think one of the phrases you probably touched on earlier was also courage; you’re not frightened to make a few mistakes along the way. And the wisdom comes with time. For sure. But the other thing you said there which was interesting to me is that having the money allows you to do things that some companies, some management teams don’t make time to put in place or are unable to put in place because money can paper over cracks, but it can also, as you say, through the drill bit, release potential, assuming you bought at the right price. So, I mean, do you look at the market and go, boy, there’s some nice assets there. They’re struggling, I could do something with that?

Ross Beaty: Yes, I mean that is a difference for sure between now and when I started out, I can certainly say that my last two large companies, Equinox Gold and my renewable energy company that was called Alterra power, which we ultimately sold to a big Montreal-based company a couple of years ago, both of those companies would not have done nearly what they did without my ability to back them financially. I was able to backstop Equinox Gold, not once, not twice, but three, three times now with a significant pot of cash that they needed to get kind of over that hurdle to acquire some means, to finance a program. And with that support and my own, as you might put it, my own brand, other shareholders came in at the same time to provide additional capital and we were able to get over that hurdle and built scale, not just when we started, but several times since. I mean the company is only two and a half years old, but we have done this now three or four times, where I was able to put a significant amount of cash in and it really helped the story. I couldn’t have done that if I was starting out with no money.

Like I said, with my first company, I had no money. I mean, my total investment in that company was USD$3,000. And then I bought more shares every time I made some money in something else, I would put into buying more shares. And then I, so eventually I built up a decent position in the company before we sold the company.

But today it is very different in that respect. If I was starting over today, you’d have to go through that struggle. But that’s kind of what business is about. You start at one scale and then if you develop things and are lucky enough to capitalise on it, you start again and you try to scale up like that, and that is very much my story.

I guess the one thread that has been consistent is I have been lucky. I have been very lucky in getting markets right and in making discoveries in where I live and how I finance it. I have had a lot of luck. I’m not saying you can’t get that luck or you couldn’t get that luck if you started again today, but because the business does reward luck; I mean, it does have a lot of luck in it and a lot of people do get that luck. So yes, you can start today. I’m sure you could. This is a long, very long answer to your simple question. Could you do something? Could I do something today? Starting out as a young geologist the way I was starting out in the early eighties, and I’m absolutely confident you can. In fact, I know people who are doing it. There are some young geologists out there. They’re very smart, very dedicated and hardworking people and they’re making big successes out of it. However, the one thing is, I do think this is not for everyone. So not every person is just made to be an entrepreneur. Thank God, because otherwise the world would spin out of control. So if you’re going to try to get into this business, look at yourself in the mirror; ask yourself who you are, what you’re good at, and if you feel you’re actually not a risk taker, this is not a business for you; you shouldn’t be an entrepreneur. You should be an employee because you can be a great part of someone else’s team and still be incredibly rewarded and fulfilled and make lots of money. But if you’re not born to be a risk taker, which is fundamentally what entrepreneurs are, I mean, I love risk. I thrive on risk. I embrace every, every time I see a risk, I just want to wrap my hands around. But it is a weird kind of a thing, but a lot of people aren’t like that. My wife isn’t like that. She’s exactly the opposite. I mean, she’s a doctor; every time I sneeze, there’s some horrible calamity that’s happening to me. And so, it’s not for everyone, that is what I’m saying. And if you’re not an entrepreneur and you try to be, you’re not going to succeed. So, know who you are.

Matthew Gordon: I think that is good advice. It is calculated, measured risk, but you’re assessing multiple variables very quickly to make decisions. I like that.

Ross Beaty: I use a coin. I flip a coin.

Matthew Gordon: Nice. Nice. Keep it simple. Okay. I think someone wrote a book about that. They went through a year making decisions based on a flip of a coin. I’m not sure it ended too well, but it could have. Can I just ask you about Equinox please? Because we have interviewed Christian Milau a couple of times. Really nice guy. I like the story that he painted. And it would probably give us a good chance to understand your thinking when you’re putting these teams together because like I said, you financed them, not once, not twice but three times. And you’d put together a bunch of companies for low-grade bulk Gold recovery. So how did you get that team together? How did that story come to you? It is your last hurrah – how is it going to finish?

Ross Beaty: So, I like Gold first of all, the commodity. We’re in a good secular bull market, and regardless of COVID, by the way, things that are going on in the world financial field and just generally with the amount of money that’s floating around the world and being stimulated every place today, it’s just the macro market, the macro environment for Gold is fabulous. And it started being fabulous since about 2015, 2016. So, I had a couple of Gold investments, of course I have a Silver company, Pan-American, which is exposed to Gold, and Silver markets pretty well. But I really like Gold, and I kind of, I had just sold in 2017 my renewable energy business that I spent much of the last eight years working on. And I kind of wanted to have a last hurrah in Gold, I mean at scale.

I mean the market today, and that is size. The market is very different than it was 20 years ago. It really rewards scale. We have all this, this robot money, the ETF money, the computer-based buying and selling, and so much of the investment today is dumb money. So, what that is rewarded by is getting scale, getting somebody with a lot of liquidity and size and leverage.

So, I had a little company that was a cash shell. I am good friends with Richard Warke. He had a Gold business that was kind of just sitting there, it was a one asset company called Newcastle. And then Christian Milau and his team had a Gold company with an asset in Brazil that was kind of not really going anywhere, so we thought if we put them all together, we could we could build something at scale. And that was something that made sense to me. I agreed to chair it and to make it my last company. And so, we named it after my first company, Equinox Gold, was named after my first company, as a kind of a way to bookend my careers with Equinoxes and Gold companies.

 And we went out hard. We started the company, it went public just right at the very beginning of 2018 as a 3 way merger. And we really haven’t looked back. We bought a Gold mine in California and an operative Gold mine at the end of 2018, which gave us one producer, a little bit of Gold production that year, 25,000oz in 2019, because we then opened up our mine in Brazil we had a little more Gold production. We produced 200,000oz last year. And then at the end of the year we acquired Leagold, which has now built a significant six-mine portfolio: two development projects, one in California and one in Brazil, plus the expansion of a mine in Mexico. And we’re going to produce over 600,000oz this year and we’ll be on the road to about 1Moz sometime next year.

So it has been just an absolutely exponential growth, and that’s precisely what I felt was the right strategy today to get leverage to Gold in both operating business; on an income statement and also on your balance sheet with respect to very large Gold reserves and resources. I think we have something like 24Moz now in our reserves and resources. So, it is a very, very leveraged vehicle now that the market has absolutely embraced the business plan. The guys are good strong managers. Mostly the management team is Christian’s team supplemented by Nelson, some strong people from the Leagold teams.

So Equinox Gold now is a mid-tier producer going on the way to the journey towards becoming a senior producer. And there’s no magic to a million ounces a year, but it does separate you. If you hit a million ounces a year, there’s only 15 companies in the whole world that produce a million ounces or more. So, you’re in a very small club and it’s a club that investors want today. They want that size, they want that liquidity, the ability to go in and out with big volumes of money. And we now deliver that. So, we have grown very satisfactorily in the last couple of years from that idea that we created back in the end of 2017.

Matthew Gordon: Okay. So, lovely idea. You brought it together with your, well the people who surround you and your own capital and you built that into it. Was it a $1Bn? $2Bn? What is it at today?

Ross Beaty: Canadian dollars – it’s about CAD$2.5Bn, USD$1.8Bn.

Matthew Gordon: $1.8Bn. Right. Okay. So ,when we last interviewed Christian, it was USD$1.2Bn. I’m intrigued by the team that you’ve put in there and how you incentivise them. When I spoke to Christian, he said to me that the entrepreneurial spirit is in the company, and by that, you can demonstrate that by saying, they don’t take big salaries, but they do take positions themselves. They use their own cash and are incentivise with, whether it be options or warrants or whatever is on the table to make them hit targets, to incentivise them to hit targets. As you say, not everyone is entrepreneurial and self-driven. Some people need incentives, but I liked the fact that they weren’t sort of taking big wages off the table. Because we have interviewed some pretty big companies along the way and it just seems to be they’ve reached that point where they’re not quite sure, they’ve run out of ideas as to how this thing moves to the next stage, and therefore what does it do for the shares? Because ultimately, we buy shares, we’re not all sitting at your side of the table. We’re sitting here investing in your companies. And we are looking to make money on shares. So I liked that, and it continues to grow but where does it stop? What’s the end game here? Are you going to be taken out or is this thing just throwing off cash and you’re throwing out, throwing back dividends?

Ross Beaty: Right. So, in my case the outcome for Equinox is really the same as that for Pan-American Silver, which I started 25-years ago, or 26-years ago now. Really the plan is to build a world-class Gold mining company that will become simply a world name, a brand in its own right, in the world that will last a long, long time and not be something that someone else buys or is offered for sale. A company that will outlive me, that I will probably pass my shares onto my kids or simply put them into the foundation that I have, the nature foundation or environmental foundation that I have, where most of my money goes when I kick the bucket, if not sooner.

I mean, I have no particular need for money. I have a great lifestyle. I don’t do any of this to earn money to spend. I just do it for the fun of making money and creating wealth for me and for other people. But once you’ve made it, I also have a lot of fun giving it away; so I’ve given a huge amount of money away and I’ll continue to do that. It is great. It’s great fun doing that as well. So, for Equinox there’s no plan to sell. For some of the other companies like Lumina Gold for example, it’s 100% of the business plan to sell that company. It’s an exploration company. It’s not a producing company. And the idea there is to sell it to a big developer, a big Gold producer, the same way as I’ve sold so many other companies in my career.

Matthew Gordon: Yes. We have got Marshall coming on in a couple of weeks and we have interviewed him last year a couple of times as well. Yes, so I mean there’s like USD$1.2Bn worth of capex required for that. You’ve no interest in funding that I presume?

Ross Beaty: No.

Matthew Gordon: None. In and out. Okay.

Ross Beaty: Different business, different business plan.

Matthew Gordon: Okay. Tell me a little bit about Pan-American because you’ve delivered, you’ve given what? USD$450M back in dividends over its time, as throwing off cash. It’s a huge Silver producer. Is it just more of the same? Is that the idea?

Ross Beaty: Yes, it is, it’s more of the same. It’s a much bigger company now than it was a few years ago because we combined with Tahoe resources at the beginning of last year. So not only does Pan-American produce, it’s the second largest primary Silver mining company in the world, but it also produces a lot of Gold: it will produce almost 600,000oz this year. So, it’s a very leveraged company to Gold as well as Silver. And it’s got an impeccable balance sheet, great cashflow, multiple assets in multiple countries. So, just a really good diversified major company in the solar business as well as the Gold business that I hope is going to last a long time. Those companies are hard to build, but once you built them, they’re actually, they kind of run of themselves.

The thing about all these companies though, don’t forget all these operating companies, the mining business, the reason there’s a market for these junior companies, the exploration companies that have good assets, that are setting themselves up to be sold, the reason there’s always a market for those companies is because major companies eat their future every single day, right? Their reserves deplete. And unless they replace the reserves through their own discoveries or by buying other companies, they go out of business. Their whole business plan dies unless they sustain their production by acquiring other companies that have good discoveries, that will allow them to sustain their production for many years, or they discover it themselves. And major companies aren’t very good at discovering mines themselves. So therefore, they generally go out and buy them from juniors. And that’s why there’s always this great market for the junior companies that are successful; they’re going to be bought.

And so Pan-American Silver probably, like Equinox Gold, they got to a certain point where they’re not making their own discoveries quickly enough to support their depletion of reserves from mining and they have to go out and look for other companies. And that’s probably going to be what these companies are going to do for a long time.

Matthew Gordon: It’s very tough, a very competitive environment, which doesn’t make things any cheaper, but if you can find a niche, find your position in this, I guess you’re saying that you can, you can do it with the right drive and ambition.

Ross Beaty: You can do it, you can do it. And yet companies do make mistakes. They buy companies that are dogs, or they build a mine that turns out to be a dog. This is a very risky business. And even the people in the business like me, we often make terrible mistakes. We buy the wrong thing. Pan-American bought a company in Argentina that had the biggest Silver resource in the world. It was fabulous deposit in the middle of a perfectly good place to mine, in the middle of a kind of a windswept no man’s land in the middle of Argentina, Pampas in Southern Argentina. And it had every technical reason in the world to be a really great place to build a mine. There was no biodiversity loss, no environmental issues at all, no people, no nothing.

And yet, weirdly, we had terrible luck, the province was a place where another company had made a discovery of a really rich Gold deposit in a ski resort. And the people in the ski resort went bananas and they banned mining, and they threw out the baby with the bath water and they banned mining in the entire province. Well, I couldn’t figure any reason that that would persist because it was so illogical to me and obviously, no technical or environmental sense. So, I thought, well, let’s go and buy this company that’s got this great deposit there. The deposit is perfect for us, and at some point, they’re going to change the law and allow open pit mining.

Well, it has now been, I think it has now been 10-years, 10 or 11-years that we have owned that deposit. And I still have that kind of blind optimism that they’re going to change the law, but so far they haven’t, and maybe they never will. So, if they never do, that will have been a really, really dumb thing to buy. But you’ve got to take risk and you’ve got to swing that bat and try.

If it is permitted, it’s going to be a home run. If it’s not, it’s going to be a strike out. So, that’s your risk and reward ratio when you make all these decisions on these companies. And so, I can say that from personal experience.

Matthew Gordon: I mean, that nearly happened with Taho, didn’t it? There was nearly a sort of sticky moment there. I mean, it was idle for well over a year. I mean that must be tough going?

Ross Beaty: Well, it still is. It still is idle. I mean, we bought Taho in 2017, right at the bottom of the kind of there was a low in the Gold price. The Taho price had been crushed because its main asset was put out of operation by a constitutional court in in in Guatemala. And we came along and said, okay, well the value of the purchase is based on their other assets. And that’s been for us, it’s been almost a home run. I mean, the timing was just beautiful ,and the assets are good and we got the Silver asset in Guatemala for free. And if we hadn’t restored that operation, then we’re going to make a payment to the Tahoe shareholders. But if we don’t, we don’t pay for it.

And so, it was a very well structured deal. But to be honest, to this day, it’s not running yet. We need to get social licensing in Guatemala. We’re working very hard to get it. And we may get it and we may not get it. It’s just the way it is. We’re pretty sure we will, because again, it’s a resource that is very high grade, very, very low-cost mining. The mine is built, everything’s there. It’s a tiny footprint. It doesn’t cause any real issues with anybody. It generates a massive amount of wealth for the Guatemalan economy. There’s no real logical reason in the world that that mine shouldn’t be running again, creating wealth for the Guatemalan people and for Pan-America. But so far, it’s not running. That’s all I can say.

Matthew Gordon: Sometimes you win and sometimes you have just got to wait to win. Can I talk to you about, so we have got this big European, Asian audience , Canada is, obviously the North American market is huge, but can you give me your view on things like naked shorting, the uptick rule, et cetera, and any other things like the quirks of the Canadian TSX, TSXV exchange? Do you think that those things are being properly regulated? Do you think that those things are being looked at properly? Do you think they’re an inhibitor for people coming from outside of Canada to invest in Canadian companies?

Ross Beaty: You know, I really don’t have a dog in that fight. I don’t, I don’t really, I’m happy with things as they are. I don’t make a fuss about this kind of stuff. There’s way too many things going on in the business that are far more important, that require time and energy and money and focus than to worry about this kind of stuff. I really have absolutely no opinion on it. I can take it or leave it. It doesn’t matter to me,

Matthew Gordon: But I guess it doesn’t affect your type of business. It is just interesting to me. We have got some pretty big names who sit on opposite sides of the table on the topic. I wondered if you had a view.

Ross Beaty: No, and don’t forget that, again, I’m not really an investor and even if I wasn’t an investor, I’ve never been an unfriendly, hostile investor and I just don’t engage in that kind of thing. Life is too short. There’s so many easy ways to make money in this business really if you get things right: invest in good people, invest in nice looking projects that I’ve got a bit of understanding of what they look like because I’m a geologist and I can read the news releases pretty competently. And I’ve been to so many places, I kind of have a pretty good feel for countries and all the risk envelopes around those things. So, I focus on those things. I don’t worry about all the other stuff.

Matthew Gordon: Okay. One last one for you is, really the advice to retail, family office investors around the ratio between Gold and Silver. I’m not a big Silver guy. Gold I understand. Uranium, I understand, but Silver not so much. It’s always been to me a very volatile commodity. But people talk about the ratio between Silver and Gold and the relationship between Silver and Gold. What’s your view on where Silver can go?

Ross Beaty: Right. I think the Silver-Gold ratio, it’s only a statistic that has meant something because it has been relatively consistent: around 55:1, for quite a few years, for several decades, I’d say for a couple of decades. Inherently, it means nothing. Every commodity is different. The one thing that’s consistent between Silver and Gold is that they’re both precious metals. They’ve always been used as money for many, many centuries. They both have ingredients that make them a store of value for a lot of people who want a store of value. How Silver differs from Gold of course, is it’s also an industrial metal. And so, it’s increasingly industrial as it is used in more things than any other metal in the metal spectrum. Silver has more uses than any other metal. And I could go on for hours about what all these uses are.

We use it in every single thing in daily life. Every time you pick up a computer, a calculator or electronic calculator or a cell phone, you use Silver. It’s used in mirrors. It’s used in resin alloys, it is used in everything digital. Of course, it’s a beauty adornment. It is jewellery, it’s Silverware. It is money. It’s got all of these different uses. Its largest use today, you probably don’t know this, it’s largest single use is as in photovoltaic cells. It is 100Moz nearly that it’s used now in photovoltaics, out of 1Bnoz total demand.

So it has got all these uses and therefore, you have got to look to industrial markets to understand that part of the Silvery equation, and quite frankly, in the last year and a half, or 2-years, industrial metals have all gone down in price because China has changed from being an infrastructure economy to a services economy and a consumer goods economy and that uses less metals.

With this COVID crisis, of course, all metals have, have come down with decreased industrial demand. Silver is in the middle between a classic industrial metal, like say, Zinc and Gold, because it’s got elements of both. So, if Gold does well, industrial metals do poorly, you’re going to see that Gold-Silver ratio increase because Gold will do well, and Silver won’t. Silver is in the middle somewhere. By the same token, if we re-inflate this fall, if the markets come back to some kind of a strong economy based on all of this crazy amount of stimulus that’s going on everywhere in the world, that juices demand for industrial metals, all driven by pouring money into infrastructure projects and whatnot. If it juices demand for industrial metals and Gold does well, you could see a perfect storm for Silver.

You could see Silver benefiting, both as an industrial metal and as a precious metal, and actually outperform Gold. Well, if it does that, that Gold-Silver ratio is going to go down and it will recover to something less than a hundred, maybe 80, 90. Who knows what, but you’ve got to look at both of those markets to understand it. So, I think Silver has a potentially fabulous outcome this fall or this next year if, in fact, Silver demand is increased in industrial production as well as Gold doing well and Silver coming along with the coattails of Gold. And if that happens, obviously the Silver-Gold ratio will change significantly. It’s strong where it is. The Gold-Silver ratio is high right now because Gold is outperforming Silver. Gold is outperforming industrial metals. That’s why it is, in a nutshell.

Matthew Gordon: You are a precious metals guy, so I guess you don’t really have an opinion on the next thing either. But this wave of nationalism and trade Wars and national security, which is affecting a lot of other commodities, especially around the EV thematic, and even Uranium, I guess. Do you have an opinion as to, is this going to, because we talked about cycles earlier and obviously things like the ebb and flow, but what’s your take on it?

Ross Beaty: On economic nationalism? You mean on trade? Trade barriers and tariffs and so on? Yes, I would say the more the world goes to a protectionist state, and of course, we’re really just looking at one country that’s doing that. Right. Really. The more they go protectionist in the US, that will decrease, it will have a negative effect on global markets, I would say for sure. I mean it is, it’s not rocket science. I was going to say, it is basically economics that if you put up trade walls, you decrease demand and actually you make the country’s economy worse. It has been tried so many times in the last 50-years, or a 100-years, really. It has a logical outcome: costs go up, demand goes down, or prices go up, demand goes down and things are used less. It will have a negative effect and I don’t think it will persist. It’s not smart economics. It’s not smart policy. It’s maybe good politics for a while, but it’ll fall apart.

Matthew Gordon: It’s also good TV, right?

Ross Beaty: It’s good TV. Yes. It plays to that guy’s base, as ignorant as it is.

Matthew Gordon: There you go, that is a fantastic place to finish this conversation. Ross, it’s been a pleasure talking to you and I learned a few things there. So, I do appreciate you taking time out of your day for us. And I’m going to let you get back to your family and whatever else you’ve got lined up for today. Thank you very much. We’ll speak to you again soon.

Ross Beaty: Thank you. Thank you very much.

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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A photo of Ross Beaty

Luminex Resources (TSXv: LR) – Gold Miner with a Tight Shareholding Structure & Access to Cash (Transcript)

Interview with Marshall Koval, CEO of Luminex Resources, a Gold Explorer and Developer in Ecuador. Part of Ross Beaty’s Lumina Group, Luminex Resources has a very experienced management team with a track record of delivering returns to shareholders. They have quickly established deals with BHP, Anglo American and First Quantum. We discuss all of this and address retail investors’ needs in detail in this interview.

Interview Highlights:

  • Lumina Group Track Record and Highlights
  • Strategy, Model and Thinking for building a large Gold & Copper Producer in South America
  • Assets and JV’s: Breakdown and Commitments
  • Share price: Changes and Causes
  • Mining in Ecuador
  • Enhancing Liquidity: How are they Promoting this Gold Company?
  • Company Financials and Remuneration

Click here to watch the interview.


Marshall Koval: Luminex Resources was the company we spun out in 2018 and we’ve got a large portfolio of assets, earlier stage exploration in Ecuador.  A bit different than the Lumina Gold story which is a development project, but we’ve got large scale exploration properties for copper and gold as well, and then we’ve got some world class partners that we JV’d with to do some of the exploration and we’re doing a bit of work ourselves on our Condor project.

Matthew Gordon: So you’re referring of course to the Lumina Group.  Why don’t you tell us a bit about that?  There’s a bit of a track record. You’ve been making money for people.  I think you’ve raised – you told me last time – $175M and returned $1.5Bn to shareholders. 

Marshall Koval: Lumina Group was founded in 2003 by Ross Beaty who took a view on copper.  So went out and acquired a lot of world class assets and it was sort of an option play originally.  And as time went on, you control these projects, you have work commitments and basically the long and short was raised about $175 million, like you mentioned, and returned $1.5Bn to shareholders.

Matthew Gordon: Obviously with Ross Beaty’s involvement that gives you access to capital and reputation as well, plus you obviously have delivered as a management team.  With Luminex Resources, it’s a relatively small market cap right now.  It’s early days.  You’re also involved in Lumina Gold. Where are you spending most of your time?

Marshall Koval: Right now it’s been about a 50:50 split for me.  We’re advancing the Lumina Gold Cangrejos projects towards pre-feasibility studies.  So there’s a lot of technical, engineering work, fieldwork, so I’ve been working on that, but also I’ve been front and centre on all these deals with BHP, Anglo American, First Quantum, that we have joint ventures within Ecuador.  The combined amount of those deals is about $140M committed to copper exploration.  So we’ve been running 2018 and 2025.

Matthew Gordon:  Why have you spun out Luminex Resources from Luminex Gold?  They’re both gold companies.

Marshall Koval:  Basically, our philosophy is we’re an exploration development group.  We tend to try to acquire large scale projects like the Cangrejos project in Lumina Gold, and basically the idea is to add value, derisk these and move these on to somebody that would build the projects.  It’s basically the same model as Lumina Copper.

So what we had is when Ecuador opened up their concession system and granted new concessions, we acquired – even though we’re a gold company – quite a few copper early stage exploration projects.  So by spinning Luminex out, we have a core asset in the Condor project which has about 1.4Moz of gold in Indicated and 2.5Moz in Inferred.  But we also had these early stage copper exploration projects, so rather than going to the market and deluding our shareholders, we went and did JVs with three major companies to explore these copper assets.

Matthew Gordon: Let’s get into that because I can see Condor, Tarqui, Pegasus, and Orquideas.  Do you want to break those down?  I think what our audience is really interested in is what you’re thinking, what your strategy is.  What are your plans for these? 

Marshall Koval: So these copper assets. We’re pretty opportunistic.  We had a lot of information in Ecuador and when the concession system option came up, we acquired all these projects – Tarqui, Pegasus, Orquideas and Cascas.  And then we did initial work ourselves.  We have a team of over geologists in Ecuador, so we did a lot of the basic exploration work beyond what was already known about these projects.  And we advanced them to the point where we actually didn’t go out and solicit companies to do deals.  This was all inbound. 

The first deal we did was with First Quantum on Orquideas and Cascas.  Right now First Quantum is in the field.  We’re the operator in he project but working closely with First Quantum.  We’ve got five drill holes in and about 1500 metres of drilling, so far.  So that deal with First Quantum we had to spend $38.5M over five years to earn 51% and they can earn an additional 19% if there’s a discovery and they carry us to a production decision.

Matthew Gordon: So they can earn up to 70% subject to them paying up for that and obviously getting through to construction.  But what’s in it for you?  You’ll get 30% of what?

Marshall Koval: There are two deposits – the Orquideas which is being drilled out and that’s to the north and then the Cascas to the south.  These are large copper anomalies we’ve identified with geocam and geophysics and they’re about 5km x 2km / 3km wide – both of them.

So basically if there’s a major discovery – and these are straight copper projects, no gold.  Then we’ve got with Ross’ involvement in our group, if there’s a major discovery we can participate in the 30% if it gets to construction, or we have the option to sell out that portion.  There’s a lot of groups – a lot of them are Japanese companies like Sumitomo for instance, that would look at buying a 30% interest in a major copper mine. So it gives us leverage to the upside, is basically the idea with all these.

Matthew Gordon: So explain those numbers.  So First Quantum put in $38.5 Mover the next five years.  They get 51%.  Are you putting in any additional cash?

Marshall Koval: It’s a straight earn in JVs, so after they spend the $38.5M they earn the 51% in the JV company, and then if they advance it through pre-feas, feasibility study and construction, we’ll carry it for the 19%.  And then when you get to 70%, that’s where we would have to put our pro rata in.

Matthew Gordon: So that’s great optionality for you on that deal.  That was the first deal.  Let’s go to the second deal.

Marshall Koval: So Anglo American is a bit different approach.  So on the First Quantum deal it was two specific deposits that had been identified.  Anglo took a broader scale.  So the Pegasus A and B is our largest land position in Ecuador.  Let me just say this – we’re the second largest concession holder in Ecuador and the Pegasus A and B is the largest concession that we have.  So we have about 135,000 hectares of mineral concessions and Pegasus is about 65,000 hectares. 

So Anglo’s view is a bit different.  They’re looking at a broader regional district sort of scale.  There’s upper porphyry and some gold showings that we’ve identified in the area.  So Anglo’s approach is more systematic, broader regional scale exploration.  So the deal we have with Anglo is they have to spend $57.3M over seven years, earn 60%.  And they can earn an additional 10% if they carry us to a construction decision. So right now they’re in the process of a lot of field geochemical work, they’re getting ready to fly a geophysical over the entire land package to look at perspective terrain.  And so that’s basically the Anglo deal. We’re really excited to have both these – and BHP too as part of.

Matthew Gordon: One, access to capital, but two, these are names that people trust as well.   It lends some level of comfort to investors. So that’s a slightly earlier stage project but again because we’re talking about seven years for this earning period and then you’ve got BHP.

Marshall Koval: So BHP is a deal we just closed in the last month.  Basically BHP… So let me back up.  Anglo is the operator on the Anglo deal.  First Quantum , Luminex is the operator and on the Tarqui project, BHP is the operator.  Tarqu’s on the area of Mirador, which is a copper mine that’s in construction right now.  So it’s in that ugly prospective copper mill, and this is a small land package compared to the other ones.  We made a discovery out there and it looks pretty promising.  It’s some of the best copper terrain that we’ve found in Ecuador through the work that we’ve done. 

So the deal with BHP is they have to spend $42M over six years to earn 60% and after that they can earn an additional 10% by spending another $40M, and that should take you roughly through a feasibility study if there’s some discovery there.  So basically that’s the idea.  These are large targets, large anomalous areas that we found in the field.  They were putting off risk to these first class partners to advance these projects.

These leads us – our primary focus after these three partnerships is our Condor project.  Most of these assets are in south eastern Ecuador.  The only one that’s stuck in the central area is Anglo American.  You can see all of our holdings on Slide No 5.  You can see where these different properties are in the country. 

Let me just go back to Luminex.  We just announced high grade discovery at Condor.  And Condor’s interesting because it’s a large land package, the northern part of the property is a thermal gold deposit and the southern part is gold, copper porphyry and we just made a high grade discovery at the camp zone and we’ve drilled four holes into it now.  So that’s pretty exciting.  We put a couple of press releases out in the last month or two, and we can get some details on that lately.  Right now we have one drill at Condor and we’re drilling at Condor, but we think we made a significant discovery beyond the known resources that have been reported to date there.

Matthew Gordon: So these are all relatively early stage projects in the scheme of things, hence the market cap.  Your market cap is quite low.  I guess the BHP explains the bump in the share price this month.  You went from $0.70 to $0.90.  I think $0.92 today.  So these partnerships that you’ve created, how long did they take to actually come into fruition?

Marshall Koval: These are big companies and these are complicated deals because basically you’re structuring the earning agreement, royalty agreements, KV agreement, assuming that you have a producing property.  So there’s a lot of paper and there’s a lot of negotiations involved, but generally they’ve taken nine months to 12 months to go from initial interest to negotiation closing of properties.

I want to add one thing on the… It isn’t just these deals that have moved the share price recently.  I think the discovery we made at Condor at the camp zone has also helped move the share price as well.

Matthew Gordon: Being what? 

Marshall Koval: So basically what we announced were three drill holes in the camp zone area and to give you an idea – these are near surface out crops.  Then we drilled down to 200 / 300m.  To give an example, in the first drill hole we drilled we had a true width inter hole of 30m that was 4.77 per ounce per tonne gold.  The second hole we drilled was a similar sort of thing.  25m at 2.49 g/t and within that there was inter hole of 9.6m of 6g/t gold.  So if you look at the mineralisation there, it’s pretty wide zones and it’s got some similar aspects to mineralisation that we see up at Fruta del Norte.

We just announced a third hole and that had 25 metre true width of 4.5/tg gold.  So these are structures that out crop at the surface and we’ve been able to define them down to a depth of 200m / 300m.  So right now we’re drilling those and I think that this discovery has a lot of momentum that can potentially move the share price if we continue to have success there.

Matthew Gordon: How much of your market cap would you attribute to the deals you’ve done with First Quantum, Anglo and BHP versus your own project?  How do you break that down?

Marshall Koval: Obviously there’s optionality to the resources that we have.  We have rightly four million ounces of gold at Condor.  Again, it’s exploration stage, sort of advanced exploration, not development.  But I think it’s really hard to break it down, but I think if you look at – when we first announced a deal with BHP, the share price moved up to about 85 cents and then the market settled back down.  I think most of the run – the $0.70 to $0.92 – had more to do with the camp zone.  Maybe we’re seeing about half of our value from the Condor asset and maybe the other half from these JVs.  It’s a hard thing to pin down but that would be my guess.

Matthew Gordon: And any more deals coming through?

Marshall Koval: We need to get inbound interest and it’s kind of interesting.  I think what’s happened in Ecuador is – as we all know it’s …

Matthew Gordon: Tell us about Ecuador because it’s a relatively new mining jurisdiction.  It’s mostly agriculture.  So how have you been getting on?

Marshall Koval: There’s been some historical mining, primarily for gold in areas like Zaruma and other parts of the country, but basically the country had a moratorium on new concessions being offered in 2008.  Basically they had punitive fiscal regimes, so that kind of shut the industry down and I think it hit the bottom basically in 2014 when Kinross decided to back out of the Fruta del Norte deal.  That was a world class gold project. 

I think what the government had was some budget of about $100 a barrel oil.  They’d primarily been oil producer with most of the economy besides agriculture.  And when that happened, when oil went down to $40M, $50M, in that range, it really blasted the economy of the country.  And Correa was the President of the time and he was actually the guy that shut down mining, and he realised that he needed to open mining back up because they needed foreign breadth investment, and that was the best opportunity to give it.

So if you fast forward, this was sort of 2014, things started opening up.  We were in the country around 2013 thinking things were going to get better, look at a lot of stuff, work with the government to tell them that they needed to improve their fiscal regime.  And so after the Kinross deal collapsed, Lundin Gold acquired Fruta del Norte and Lundin and several other companies pushed on the government to get a better fiscal regime.  So as we sit today, the fiscal regime is workable.

Matthew Gordon: What does that mean in terms of tax, royalties, etc?

Marshall Koval: Basically if you look at the effective tax rate in the region, a country like Chile has got the best fiscal regime and it’s 38% to 40% of the rents, if you like to call it that, of a project going to the government.  If you go up to Peru, it’s 45, in that range, and Ecuador’s up around the 50%.  So basically that change from… windfall tax is 70 per cent and a lot of other issues that Ecuador had, Ecuador was probably up in the mid-60s.  The fiscal changes that have been made, sort of made it so that major mining companies – guys like BHP, First Quantum, Anglo American, a lot of New Crest, a lot of other players, have come into the country and are comfortable enough with the fiscal regime to invest. 

Matthew Gordon: Can we just talk about shareholders, please?  I know you’ve mentioned Ross Beaty.  Obviously you’ve been working with him a long time, you guys have made a lot of money for yourselves, but also shareholders.  What’s the breakdown here for Luminex?  Who’s in it?

Marshall Koval: If you look at Page 6, that kind of gives you the stock info.

Matthew Gordon: Sure, but it doesn’t tell me who. 

Marshall Koval: If you look at management and insiders, we have about 24% of the company.  Ross has 15.4% himself.  I’ve got about 4% and the balance is the rest of the management team.  But also we have some institutions that have come into our last financing. 

Matthew Gordon: Who are they?

Marshall Koval: Mainly at the end of the US and also there were some in Dubai.  But basically what we have is a group of friends and family that have followed Ross in the group for quite a while.  So if you look at it from that perspective we pretty much know where probably about 50% of the stock is, is pretty close to the group.

Matthew Gordon: But the rest of it’s Canadian retail?

Marshall Koval: Canadian retail and US.  We just recently listed on the OTC.

Matthew Gordon: Has that made a difference?

Marshall Koval: We see a lot more activity in the US. The US has always been important.  Two of the funds that have come in pretty substantial ways in both Lumina Gold and Luminex are California based.  So that’s an important aspect for us. 

Matthew Gordon: You’ve got to move it up.  You need more volume, you need more liquidity, need more trading, hence OTC I guess, but what else are you doing to get this promoted?  I know when we spoke last about Lumina Gold, you were starting a process.  How are you doing that Luminex?

Marshall Koval: So Luminex, given that there’s about 50% that we know of that’s long-term investors with the group in the story, that doesn’t leave a lot of free float out in the market.  So one of the things we’re doing quite a bit is we’re marketing in Europe, the US and Canada and we’re targeting the retail investors.  I think that’s going to be an important aspect going forward.

Also we’ve seen some funds that we’re buying in the market.  We just completed a financing, and right now we have about $7.5M in cash on hand, so we’ve cash up pretty good to move things forwards.  We’re not out marketing, looking to raise money but we’re continuously… Scott Hicks and myself are continuously working with investors.  We have a large focus on retail investors now, so…

Matthew Gordon: When you say you’ve got a large focus on retail… What does that mean to you?  What are you doing?

Marshall Koval: Doing a lot of town halls. It’s kind of interesting and it’s mainly focused on retail investors.  We’ve got a pretty broad reach.  It’s not just the US, Canada, but we’re seeing investors in Europe participate in these.  We’ve had over a hundred people at a time, and so we’re reaching out continuously like that, we’re going to conferences.  We’re at the spot conference in Vancouver next week and we have a Blue Fair.  We’re really trying to get the story out as broadly as we can because I think we’re still in the early stages here.  Obviously every CEO you’re going to talk to is going to tell you that his stock’s undervalued but I think there’s real… even with the move up into the 90 cent range, we still have a $47M, $48M market in cap, and any one of these projects we have significant success on, will see a substantial move from this point.

Matthew Gordon: Where do you see the value coming in?  You’ve got some big names associated, they’re spending nearest down at $140M on some projects for you.  You’ll still be left with a reasonable chunk of the companies or the projects after that, but how much of this is Ross’ company and how much is the Board actually doing to making decisions?

I look at Anfield Gold.  Obviously that’s gone into Equinox along with a couple of other projects to create a super project, $800M market cap for Ross there and Equinox.  Lumina Gold is sitting at around $170M, $180M market cap today.  Luminex $35M, $40M. Okay.  So is it a case of you take these things through following a plan or, because of the nature of your business, explorer, developer, you’re a little bit more free flowing in that?  It’s a case of are there opportunities to maximise… How do you think about that?

Marshall Koval: I think the value drivers for us in Luminex is going to be exploration success, adding resources and making discoveries.  A good example of that would be the discovery of the camp zone.  It was never drilled. It’s right underneath our camp at Condor.  Geologists from several companies – I mean this project’s been around since the 80s – sampled over the area and we had one of our geologists see some interesting rocks in a road cut and started to focus on doing work.  He did sampling and trenching work.  So it was a brand new discovery.  The drilling was –  also I mentioned to you earlier – we have a discovery in there. Now given the size of it, you could have a potential for a million / two million ounce deposit.

Matthew Gordon: So it does create value, but I’m more interested in the decision making.  So Ross Beaty, big name and reputation.  He’s got access to capital, all that good stuff.  With Anfield, rather than grow it yourself, it was a question of “Well, we could or I can roll it into something over here.”  What do the shareholders of Anfield get out of the Equinox deal?”

Marshall Koval: I’m on the Board of Equinox with Ross and several other Board members.  That was the deal where we had the Curinga deposit and we had some other assets, and at the end of the day Curinga turned out to be a small project that will be a mine some day. But, you know, there’s a management issue.  It takes as much effort to manage a small operation like that as it does a big project.  So the idea there was Anfield was going to be the vehicle we used to build the gold production company.  That’s what Ross wanted to do.  But at the end of the day Ross put a deal together to form Equinox and we had about $50M in Anfield.  The idea there was to take the assets, the Arizona mine which was a brownfield site in Brazil and the Casa Mountain project in California, and advance those.  So Equinox became the vehicle instead of Anfield.  Today we’ve got two producing mines in Equinox.  We’ve got a third mine, Casa Mountain that’s going to be put into production soon. 

So that was the idea and that was the producing story. So if you go back to your question about the Board – we have a pretty sophisticated Board.  Myself and John Wright handle a lot of the technical aspects and John’s the ex-President of Pan American Silver.  He’s a technical guy.  He’s on the Board of Silver Crest and Aero Copper.  And Dave Farrell, for instance, he’s the capital markets guy.  He’s on the Board of Fortuna.  Don Shumka is on the Board.  He’s experienced audit committee guy.  He’s been on the Board of several large mining companies, and then we have Lyle Braaten who’s our attorney and he’s involved in government. 

So basically the mandate of the Board is ‘Let’s try to maximise the value that we have in these assets.  Let’s go out and explore.  Let’s find projects.  Let’s advance those projects.’  That’s measured, advancing these projects by derisking them and moving them along towards the development chain. 

So, if you look at the Condor project, for instance, with this recent discovery we’re planning on drilling 2300 metres here.  We’re having a second drill rig come to site and if that starts to pan out, then we start to look at this thing as a development project and put it on the path towards PEA.  So that’s where value will be created besides just outright discovery.

So then if you look at the copper portfolio, the BHP, the Anglo American and the First Quantum deals, that’s going to be large scale upper porphyry deposit discovery and given the prospective terrains, we think out of those deals you’ll see some sort of major discovery.  At least that’s what we’re hoping for.

Matthew Gordon: So how do you guys pay yourselves?  How do you remunerate yourselves? Incentivise yourselves?  You’ve only got 52 million shares here, so how does that work?

Marshall Koval: So when you look at it, the Board doesn’t get paid.  We get options.  The option grants are pretty modest.

Matthew Gordon: No salary?

Marshall Koval: Not for the Board, no.  Myself and the management team that run the company day to day get a salary, but if you look on Page 6 there, for instance, issued in outstanding shares, we’ve got 52 million after this last financing.  If you look at it on a fully diluted basis, it’s 55 million, and we don’t do warrants.  We’ll do a discount to market financing, so basically there’s not a lot of dilution and like I say we’re tied on options.  So really the upside in these financing… most of the management team participate in the financings and they have all the way through the various ones we’ve done – both in Lumina Gold…

Matthew Gordon: At market?

Marshall Koval: At market along with the other investors. 

Matthew Gordon: This is what fascinates me about some companies.  They just get it right. You don’t have many shares out.  What you’re saying is the cost of your money is cheaper than… You don’t need to do warrants, so you don’t do warrants.  You’ve got contacts. You’re talking to money from Dubai, talking to money from California.  You’ve got the institutions.  They all know Ross Beaty. They know your management team, so you’re not paying more than you need to.  This is really important for funding a company.

Marshall Koval: Let me take that to the next level because we have an anti-dilutive mine set and obviously when you’re an exploration group and you don’t have income from operations, you rely on the capital markets to finance it as you go.  But this last financing, we were over subscribed by more than $1.5M and we didn’t want to go there, so we cut it back.  Our philosophy is don’t go out to the markets and raise any more money that you need.  Given the success of the group and obviously with Ross’s leadership there, we have the ability to finance when we need to.  So we try to minimise shareholder dilution and, like I said earlier, management and Board members often take the financing and Ross is usually the lead order when we do financing. So that’s a pretty strong message to the market.  

Matthew Gordon: It’s a strong message to the market, and then top of that the types of deals that you’ve recently done with obviously First Quantum, Anglo and BHP in terms of funding projects and leaving yourself with a meaningful position at the end of it, that’s also great news for investors in terms of optionality. 

Fantastic on the money and the remuneration side of things.  You’ve talked to us about Ecuador and mining in Ecuador.  Do you think that the retail market understands the Ecuador story?  Most people don’t know it and if I’m looking at the chat rooms, forums, various social media, there’s not a lot of talk about you.  Why do you think that is?

Marshall Koval: So if you look at the Lumina copper story.  Ross took a view back in 2003 that copper at the time was $0.85.  It was going to go to two bucks, so he went out and he acquired ten really solid assets in mining friendly jurisdictions.  So in the initial days it was pretty quiet and they went on and acquired these projects.  We were in a building stage with both Lumina Gold and then we spun Luminex out, so we’ve grown in the investor market at  a bit under the radar as we consolidated things. 

Now we’ve consolidated our land position in Ecuador, the majors have come in and they have to do deals with groups like ourselves because all of the highly prospective properties in the country are in some junior ownership.  So basically what you have is a lot of these companies have to come to us.  So basically we’ve been quiet because we’ve been in the building stage.  Now the story’s changed.  We’ve got our position.  We’ve got the prospects.  We’ve got funding in place.  We put off a lot of exploration risk up in these major companies that are really good technically.  They can move our projects forward.  We can focus on Condor. 

We also have three other projects that are copper plays that we’re continuing to do primary stage exploration work.  We’re in a really good position to move forward and not dilute the shareholders.  If all these JVs go through and $140M is spent on these projects and there’s discoveries, we would have diluted the hell out of our company to raise that kind of company to do it ourselves.

Matthew Gordon: I think its smart.  Obviously mining copper, mining gold have similar skill sets.  You’ve got all the relevant skills set you need in house.  Can you give investors and retail investors, new investors, reasons that Ecuador is a good place to be and why you think the way that you’ve structured these deals is going to work?

Marshall Koval: Ecuador is the last unexplored, geologically significant terrain in Latin America and probably the world.  There hasn’t been a lot of systematic exploration in Ecuador because basically when the moratorium that happened in 2008, Ecuador set up the majority of the super cycle that we went through and basically it was shut down for business.  Now it’s open for business, from a political risk perspective I think the best indication that it’s a viable jurisdiction is that all these major mining companies have started to come into the country. 

There’s two mines that will put into production by the end of this year – Fruta Del Norte is one and then Mirador is the other.  Mirador is owned by Tongling Mining as the operator and a partner.  Mirador is a large copper porphyry deposit and Fruta Del Norte that Lundin Gold has is a large underground gold deposit.  The prospective nature of Ecuador has come to fruition with these projects being built and there’s a significant pipeline of discoveries in the country. The Cangrejos work that we’re doing has a real good project and there’s a lot of interest. 

So Ecuador is now a mining jurisdiction and there’s growing pains that go with it.  Both the government’s learning, communities, dealing with the communities.  We’re educating communities along the way. So that’s part of the story. But geologically it’s great exploration.  I’m an explorationist by training and I haven’t seen as much prospective ground anywhere else in the world that hasn’t been systematically explored. 

So then if you go for the reasons that it makes sense for Luminex within the country – we’ve got $140 million of non-diluted financing coming from our partners and we have four million ounces of gold on the books already at Condor, and we’ve made a major discovery at the camp zone.  And then like you were talking out before, we’ve got a management team that’s been there, done this before.  Our business strategy is to add value to these assets, not be the producer, move them onto somebody to put them into production and then exit. 

So if you look at the Lumina copper story, that’s what shareholders did really well when we exited these companies excessively.  So we’ve got the ability to finance.  We’ve got the technical team.  We’ve got a really strong in country team in Ecuador, so I think we’ll be successful in advancing these projects, and I’m really excited about the prospects in Ecuador.

Matthew Gordon: You need liquidity in the business.  You need a bit more turnover to drive this price up.  What type of investor are you looking for?

Marshall Koval: I think we’re looking for the investors that understand the high-risk nature in Luminex exploration.  I think they understand being patient, that discoveries will reward shareholders.  So I think we’re starting to see a positive goal move recently.  When we went into the country a lot, we’re looking at $1,100 or $1,200 goal.  We’re up in the $1,400 range now.  We haven’t seen junior equities like ourselves move up as much as the gold price recently as a general rule.  So I think we’re still at an early investment stage, but if a shareholder comes in and as we derisks these projects makes more discoveries, we should see upward movement in a positive build it price environment. Plus also we have the optionality on copper.

Matthew Gordon: Do you think liquidity and volume correlate with long term holders?

Marshall Koval:  If you look at the float at the stock, we do have a lot of long-term holders and that’s why you don’t see large volumes.  If we get three hundred thousand shares trading in a day, that’s pretty good.  So the liquidity issue is definitely something that puts a bit of a lid on the upward movement right now.  But positive news, we’re moving the stock and the more we reach out and get the story out to the broader retail base institutions, we should see things improve.

Matthew Gordon: You may have to consider issuing more stocks sooner?

Marshall Koval:  That’s the issue that we’re talking about earlier, that non-diluted mind set, but you’re right.


Company page: https://luminexresources.com/

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Lumina Gold (TSX-V: LUM) – Turned $175M into $1.5B for Shareholders. Doing it Again With Ross Beaty (Transcript)

CRUX sits down with Marshall Koval, CEO of Lumina Gold. A precious and base metals exploration and development company focused on it’s Cangrejos project in Southwest Ecuador. This team is replicating its success of Lumina Copper.

  • It’s backed by Ross Beaty and several long term investors that have been with them through the Lumina Copper story.
  • Amazing assets in Cangrejos, Ecuador. Still has the potential to grow significantly.
  • Made returns for investors in the past with Lumina Copper, which raised about $175M to return $1.5Bn to shareholders. We think that the opportunity for large returns to shareholders still exist in this story.

Click here to watch the interview.


Matthew Gordon: Hello Marshall, how are you sir?

Marshall Koval: Great Matthew. Thanks for having me on.

Matthew Gordon: Pleasure is ours. So Marshall we’ve been wanting to hear your story for a while. So can you give us a two-minute summary of the projects? Elevator pitch if you will.

Marshall Koval: So Lumina Gold Corporation is an offshoot of the Lumina Group. And you’ll know the Lumina Copper story from the past. Ross Beaty developed that company. So it’s the same group and it’s the same basic business model as Lumina Copper. Basically adding value to projects,  de-risking them. These are generally large projects. The Cangrejos project that we have in Ecuador is a large Gold Copper porphyry system and from the Lumina Copper story we’re pretty good at porphyry systems. So the idea here is to add value, de-risk it, do the technical work we need to. But these type of projects are large-capital-costs projects. So ultimately, we’re an explorer-developer and we’ve advanced the Cangrejos projects since 2014. We’ve completed a PEA study on the project and now we’re in the field doing all the field work: drilling, engineering related to a pre-feasibility study, should we decide to move forward with one.

Matthew Gordon: Thanks for that summary. I guess it would be pertinent to start with understanding a little bit about you, your background and how you got involved the project.

Marshall Koval: Sure. So as far as the Lumina Group goes I’ve been involved since 2014, been a business partner in all of the Lumina Group endeavours. Personally I’m a geologist by profession. I’ve got 40yrs experience in the industry. A lot of it has been with major mining companies, engineering companies and prior to joining the Lumina group I was president of Pincock, Allen & Holt, which is an engineering company that did a lot of work on project finance as an independent engineer for banks on major projects like Los Pelambres. So my background is more in engineering development. I’ve been involved in building mines. So that’s kind of the thumbnail sketch.

Matthew Gordon: Okay, Marshall, so tell us a bit about the board. There’s some pretty big names associated with it – Ross Beaty, obviously. Who put this thing together?

Marshall Koval: So this was a Lumina Group effort and Ross, and then we have quite a few long-term investors that have been involved with this story: Rick Rule, Asif Sharif. Management owns quite a bit in the… Ross and management own quite a bit of the company, about 27.5%. I’ve got about 4% of the company myself. So we’re really well aligned with shareholders and that’s been kind of the philosophy of all the Lumina Group companies.

Matthew Gordon: And who are the active members in terms of the project itself?

Marshall Koval: So I act as the CEO, Scott Hicks is V.P. of Corporate Development. Martin Rip is the CFO. Martin has been involved with the Lumina Group companies for quite a while. In country are Vice President and Country Manager Diego Benalcazar. He’s our senior V.P. Diego is an Ecuadorian geologist with substantial experience in Ecuador and internationally and he’s been a key-player. And then on government, corporate affairs – John Youle, who’s been with the Lumina Group for quite a while. Leo Hathaway is the key guy as far as geology goes. He’s been with Ross and myself since 2004. So we have a senior management team that’s worked together on quite a few of these projects, both through Lumina Copper and today.

Matthew Gordon: How do you deal with local issues? You spend a bit of time in your deck talking about that. Obviously, it’s a fairly new mining jurisdiction, so how does that work?

Marshall Koval: Yeah, I mean basically, I’m directly involved myself a lot with the government relations and actually in the field with the communities as well. Diego Benalcazar, country manager is really key. He’s based in Ecuador. John Youle  our V.P. of government affairs is down there every couple of weeks. And so basically, we’ve got a pretty robust corporate social responsibility team focused on community relations and we’ve got quite a few people in the field in our camp. Good relations with local communities. We don’t have indigenous communities in the area and the closest community is about 7km-8km away. We have a lot of programs with several employees and it’s primarily agricultural areas. So a big focus of the company is on CSR and community relations. As I mentioned.

Matthew Gordon: And given the team has been together for a while, this is a long-term play, in terms of getting this thing through to production but that’s not necessarily your end-game. And so can you explain what your business plan is?

Marshall Koval: Right. So basically when we acquired the asset in 2004, we were an early-mover in Ecuador. We saw things were changing. We did a lot of work compilation and put a big portfolio together. And then, you probably saw last year in August, we split Luminex Resources out of Lumina Gold and that was more earlier-stage Copper projects and subsequently Luminex has deals with BHP that we’re working on now with Anglo American and with First Quantum. And that’s more of an early-stage exploration play. So the philosophy with Lumina Gold is that this is a development project. It’s on the development pathway. It’s large. Right now we have four drill rigs in the field and we’re drilling, we’re doing exploration drilling. We have a new discovery area called Gran Bestia. That’s separate from the main Cangrejos deposit and I can give you a bit more details later. And we’re doing the geotechnical, hydro-geologic environmental work. Also doing a pretty robust metallurgical testing program and we’re supporting all that with these four drill rigs. So far this year we’ve drilled about just shy of 8,000m. And it’s been divided between Gran Bestia deposit, where we have about six drill holes and +200m of drilling. And that’s really exciting because it’s got the potential to change the whole project, make it even bigger. The PTA had about a 400Mt project that we have identified. So it was roughly a 16yr mine-life and there’s a lot of things beneficial to the project. In Ecuador, it’s close to the port facility, it’s close to infrastructure, power, roads, that sort of thing that’ll help the project. So back to the start of your question, the idea here is to continue to understand the magnitude of the project, to de-risk it ethically, socially, environmentally and then move the project on to somebody that would build it. We’re looking at initial capital cost on the project of over $800M and then an expansion in Year 5, that would require another $400M roughly. So it’s a big-dollar project and we’re a one-asset company, a junior developer, so it’s logical that a major or mid-tier producer would take it on and build it.

Matthew Gordon: So if I just understand that, obviously, the management, the board, friends and family have got about 27.5% of the business. Who holds the rest?

Marshall Koval: So Ross and the management own the 27.5%. And then I would say friends and family beyond that, but as a close to 50%. We have a lot of long-term investors that have followed the company. The Lumina Group, the Lumina Copper and it’s a pretty strong investor base in Canada, the US and Dubai. That’s been a lot of the history of the people that have followed us.

Matthew Gordon: And in that context they’re high-net-worth’s or they’re retail?

Marshall Koval: There’s a bit of both. We also have some funds involved. You know, we have a couple of funds out in California and in Canada and New York that are following us. But we do have a retail base. We just recently listed on the OTCQX in the US to try to get a broader investor base in the US. So I would say there is a mix of all of the above.

Matthew Gordon: The reason I ask about the shareholding and the type of shareholders is… The plan, the business plan as explained by you, it seems to be ‘we’re gonna drill a whole bunch more and sort of work out the size of what we’ve got’. But how do you put that in the context of explaining to existing shareholders or new shareholders coming in what the plan is for creating value?

Marshall Koval: So, you know, I mentioned the Cangrejos deposit and we still haven’t totally defined that.  That’s the main deposit for the project and we’re drilling it now. So basically there’s an opportunity for that main deposit to grow but Gran Bestia, which is about a kilometre to the North-West isn’t included in our resource that we used in the PTA. And we’ve got some really long drill intercepts that are above the cutoff grade that were included in the mine plan and the PEA. So it looks like we have either a satellite deposit that’ll be a new starter pit for us, or to add mine life to the projects. So basically, if you look at the PEA resource we had about 8.5Moz of Gold and a 1Blbs of Copper. So this thing is really large-scale. And it’s growing and it’s got the potential to bring the Gran Bestia deposit. So if you look at where we’re at in the market as far as share price, we’re trading at a really high-discount to NAV. And there’s a lot of upside and we haven’t unfolded the whole story as how large this deposit is. And this was formerly a Newmont project, so what we would anticipate is, as we start to understand the larger nature of this and de-risk it, that there’ll be a lot of upward movement in the share price potential, with the Gold price environment that’s increasing. And we did the economics of the project at $1,300 Gold and $3.25 Copper. So that’s roughly where we’re trading in the market today and there’s a lot of optionality to the projects. So, if we go up to $1,400 Gold, for instance, the project gets a lot bigger. So the upside is being able to come in now and at a low-point in the market or relatively low -point. We moved up a bit since last year. And then as we add value and de-risk this, the potential to move up and, ultimately, just positioning the company with a buy-out.

Matthew Gordon: You touched upon a couple of points there. You’ve put the numbers in there at, well $1,400 on page seven, $1,300 on page eleven on the Gold and as you say, the Copper price is also quite well-priced, considering today’s pricing. Why have you shown the numbers using those high-prices, do you think it’s justified?

Marshall Koval: Well, basically, the study was done back in mid-last year and at the time those prices… We looked at analysts estimates, we looked at consensus, and looked at pricing going forward and that seemed like a good place to be. At the time when we released it, Gold was about $1,350. And then when we did most of the work and then when we released it, it moved down towards $1,300 and then a bit below.

Matthew Gordon: Will you be releasing an updated PowerPoint with slightly more discounted Gold and Copper numbers or are you going to stick with what’s in the deck?

Marshall Koval: So what I think we would do in the current market is be right in the same ballpark in… Our plan right now is to update the resource in the second half of 2019 and then we’d have most of the field work done, and the metallurgy, and basic engineering that we can move to a pre-feasibility study. And that would roughly take another year beyond the release of the resource estimates. So you know, my view-point is the current Gold price would make sense at this point in time to do the next study.

Matthew Gordon: But I think sort of generally you’re peers with the share price around $1,100-$1,150 in the deck, I just wondered why you hadn’t. And again with the PEA, do you feel that that’s quite an aggressive number or you feel that’s fair in relation to what you’ve got?

Marshall Koval: No, I think it’s a fair number. Basically, a lot of engineering backup went into this. I mean, you see a lot of… You know, my background is running engineering companies and serving as independent engineers for banks on projects. So, the way we look at a PEA, it’s a full industry scoping study. We do a lot of engineering backup to support it, and then we extract the results from the PEA and results from the scoping study and put those into the PEA.

Matthew Gordon: Right, okay. Because again, you know, the IRRs at the moment using a high Gold number, a PEA, which, typically, with my investor hat on, I’m gonna go plus or minus 30%. You know, the IRRs right now, they’re not complementary to what you feel you’ve got. Is that because, again coming back to, we need to be thinking as investors, we need to be thinking there’s a long term play?

Marshall Koval: Basically when you look at large projects of this sort of scale, you get a project like this up to, say a 20% IRR, which we show in the deck and I believe it was $1,400 Gold price roughly. There’s very few large-scale projects like this that end up with those kind of IRRs. So we feel pretty good and, obviously, we’re trying to de-risk it and improve the economics with the work that we’re doing, with the target to move up towards that 20% IRR range, with the discount rates as we showed them in the PEA.

Matthew Gordon: Right. So I guess I’m trying to get the balance between getting in early with some potential upside as you build out the resource, because you’re talking it’s a very large district-wide body you’re working with here. This is not a small company or a small asset because there are more attractive grades out, there are more attractive immediate, seemingly immediate returns with lower-costs associated with them. I mean, how are you selling this to people? When you’re talking to investors, what are you saying to them?

Marshall Koval: I mean it’s still a growth story as we speak right now, like I mentioned earlier with the exploration works on. And like I say, Ecuador is evolving and it’s becoming a premier mining destination and the sovereign risk related with Ecuador is going down substantially. I mean, we’ve seen in the time that we’ve been in the country, the royalty rate… the windfall tax disappear, the royalty rate reduce, the tax risk fiscal tax regime reduce, so that you attracted majors, like I mentioned earlier, BHP, Anglo, First Quantum, Newcrest. So basically it’s one of the last systematically explored jurisdictions in Latin America and probably the world. So basically the upside for investment, investors are participating in the early-stage of the project. The project has enough legs that will likely build this mine in the future and we’re doing all the work we can to identify the scale of it, which looks like it is growing at this point. De-risking in, putting in place the permitting, and if you compare it to a lot of the… Let me just scroll through the deck here for a second. This is kind of important to go to page 14. Basically what we did here was we looked at Gold producing projects that have the potential of over 250,000oz/yr. And on this slide what you’ll see is projects in blue and then projects in yellow. So basically Cangrejos is the fifth-largest global development project, controlled by an independent developer. And all the blue ones are majors and mid-tiers. And if you look at how it stacks up, the project is significant. I mean we have about 373,000oz of Gold production a year.

Matthew Gordon: What are the assumptions that that’s based on?

Marshall Koval: That’s based on the PEA study and that’s the economics that we did in the PEA study. So basically, if you go, let me scroll around a little bit more here, the slide number eleven. Let me just walk through the PEA metrics real quick and you’ll get a feel for it. So on the bottom left on page eleven we’re looking at the initial production of 40,000tpa. Initial capital cost there is $831M and then in year five we would finish the expansion to 80,000tpd. That’s another $406M of initial capital. And then the life of mine – 16yrs. So there’s another $271M of sustaining capital. And then if you go up to the production scenario, in the first 5yrs you get 270,000oz of Gold a year and 25Mlbs of Copper. And then at the expansion, starting in Year 6 through 16, that’s 421,000oz/yr for the overall average of 373,000oz. And the other aspect that the project has in its favour is low operating costs. So if we look at C1 cost, we’re looking at $523/oz. And then if you look at AISC on Gold, we’re looking at $569/oz and then, because it has Copper, if you look at Gold equivalent, our cash costs are $706 C1 cost and then $741 AISC. So that gets us down to the pre-tax IRR of 15%, in the NPV – $920M and that’s at $1,300 Gold. Now one of the interesting aspects of this is we did this on the 5% royalty rate and the government has just changed the scale on the royalties that you negotiate with an investment contract. So if we were to go to 3% of the bottom grade and then… The government did this acknowledging that some of the projects, like Cangrejos don’t have the high grades that say a Lundin Gold, Fruta del Norte does. So the government, if we could get 3% that would bring the post-tax NPV up to a billion dollars roughly. So we’ve had initial  conversations with the government and we need to continue to move the project along to get an investment agreement in place. So you know there’s upside in that context.

Matthew Gordon: But just again for investors new to you, new to this part of the world, explain to them what large-scale low-grade mining involves.

Marshall Koval: I mean basically long mine life and I think it’s in economy of scale type project. So for instance Ecuador has low power costs, it’s about 6 cents per kWh. It’s a diesel-producing country in its oil sector so diesel is relatively inexpensive. The project itself has a low stripping ratio. So when you look at all of these aspects from an operating cost, when you look at whether this project will be feasible and during production will it throw off generate good, free cash flow. Really it comes down to two things. It’s not so much the sustaining of the initial capital, it has more to do with the operating costs and the Gold price. So we can’t control the Gold price environment but we can, with the scale of this thing, be very effective in the operation of it. So there’s quite a few things going for it. That’s why you see on page 11 that it’s got favourable cash costs. And when you benchmark it against a lot of other Gold projects in the world and if we go over to slide number 15, for instance. When we start to look at average Gold production versus all in sustaining costs, Cangrejos ranks really well compared to its peers. And that even includes Fruta del Norte that’s quite a bit higher grade. We’re producing a similar amount of Gold every year. And then if you look at the mine life versus the U.S. dollar capital per ounce of mine, the capital efficiency, as you would say, it’s sort of $250/oz. So that benchmarks well with peers as well. So Cangrejos, compared to other independent developers, is a long-life, low-cost asset. And if you go back and you look at page 14 again, you can see a lot of the high-capital cost projects or a lot of the blue projects to the left of Cangrejos, a lot of those projects are looking at quite a bit higher initial capital to operate.

Matthew Gordon: Yes. Again help us understand this a bit better. So this all have been based off a PEA, which is a very, well, includes in the name, preliminary document. But in terms of the team’s experience of moving projects from PEA stage, you know the assumptions you’re making… Tell us why you’re confident of being able to get through to a point where someone would want to take this off your hands because the economics are delivered as you are forecasting them here.

Marshall Koval: If you look at our history with the Lumina Copper story – and that’s the best way to compare it – the first major project that we advanced and it’s a mine today is the Caserones mine in Chile and it’s a large upper Porphyry mine. We took the same approach, we went in and explored, tried to fully define it. We went ahead and de-risked the project and it was acquired by Pan Pacific. So the key to that was really good solid engineering exploration work. So that project was de-risked. And then we moved on, I was the CEO in Northern Copper and that project was acquired by Chinamin metals and Jiang Xi Copper and what we did there is we did a PEA, real solid engineering work and we were at the pre-feasibility stage and it was acquired for $550M roughly. Then we were involved in the religio project which is a project today in Chile and that project, we had a resource estimate, we were still doing exploration drilling, very similar to where we’re at with the Cangrejos project and check acquired that Project. And it’s in the development pipeline today and when tech required and they did a lot more exploration work and it’s a much larger project. Now the ultimate one that we sold was talk and talk. The first quantum. And that project we did at the PEA level. We took major risk areas like the pre-strip, metallurgy, water and we advanced that word to a pre-feasibility level and First Quantum acquired the project and that’s next in their Q after coming into Panama. So that’s going to move into the development scenario. So I think as far as an exit goes, basically the level of work that’s being done now should give most companies comfort that this project can move forward and be economic in the future. And obviously, a lot of that depends on the Gold price, Copper price environment. But there’s very few projects out there with this sort of scale, particularly ones that are in independent developers’ hands. So I think that the potential for a major or mid-tier to come in, probably before we even complete the pre-feasibility study exists, and then, ultimately, if we have to continue to move towards pre-feasibility study, we’re doing all the work right now to continue to advance the project.

Matthew Gordon: Okay. So I’m hearing it’s a large project. We’ve seen it before, we’ve done it before and we’ve delivered for investors before.

Marshall Koval: Exactly. Exactly. And I think just to highlight that in the Lumina Copper scenario, we raised about a $175M and returned about $1.5B to shareholders and, I guess, maybe the best way to look at that is if you flip over to Slide number 17. You can see the tombstones for all the different companies that have been part of the Lumina Group and the senior management team and Ross have been involved in all these companies and that’s been our business plan, our model and we’ve been very successful at it. And very few companies have done that. I guess on another note, the Enfield Gold asset that’s shown there, that was merged with track and with Newcastle to form Equinox Gold, where Ross is the chairman. So we have a long history, we have access to capital, we have the ability to execute tactically, and we have the wherewithal socially, environmentally to navigate difficult jurisdictions and Ecuador is evolving in a really positive way. And we feel that we’ll be successful in Ecuador as well with Lumina Gold.

Matthew Gordon: Yeah. We heard the Equinox story earlier this month. Great story there. Do you think that the Ross Beaty factor always helps, because you said it just now. You feel confident about being able to go and raise capital for the next stage. So on the money front, you’ve got $14M in the bank. Now you’re going, what are you going to deliver in 2019 with your cash?

Marshall Koval: Basically that cash gets us through the year and the bulk of the money is going into the ground in Ecuador right now, related to the drilling programs, the engineering work, the metallurgical work. All of that is where the majority of that money is going. We run a pretty thin corporate overhead. So most of the money is in the ground and it’s going towards de-risking and further understanding the extent of the project, particularly understanding the new Gran Bestia area where it could be a project changer from the PEA.

Matthew Gordon: Right. And are you raising any more capital this year or you’re good?

Marshall Koval: We don’t anticipate it at this point, no. Basically if you look at the history of the Lumina Group, we’ve just got six holes into Gran Bestia. Newmont drilled five holes. We just finished a hole that was some 800m deep and we had mineralization through it and we’re in the process of really getting into the Gran Bestia area. Now if we continue to have good success there, we may bring more drill rigs in. And that’s the history. If you look at the talk and talk project, we started with one drill rig and ultimately ended up with 10 drill rigs. So that’s the only thing, continued success there that could change the spend for the year. And if that happened, we would evaluate where we the set cash flies, and determine if we need to go back to the market.

Matthew Gordon: Marshall, our investors want to know how you’re going to make them money. How can you answer that question?

Marshall Koval: Yeah I think basically one of the main ways to look at that is, we still haven’t discovered the full scale of this project and I think what I want to do is direct you over to Slide number 10 in the deck. And I think this really shows you the upside here, which isn’t realised in the market at this point. And basically if you look at the right side of Slide Number 10, that is the Cangrejos deposit. And basically what you see on this slide is, the pinkish colour is all of the Gold equivalent grades between 0.35g and 0.85g. That’s all above the cutoff grade that would go into the mine plan in the PEA. And then the hot red colour there is over 0.8g per Gold equivalent. And what you can see in this slide is that there’s a significant deposit in the Cangrejos deposit at the right, where the majority of those drill holes are. And about a kilometre to the left of that is the Gran Bestia project. And basically what you see there is five of the Newmont holes and two of our holes. Subsequently we drilled four more holes and this thing is holding together.  What we don’t know is if this is a true satellite deposit, if the two deposits are connected and are one deposit. So if you look at that slide, there’s this red outcrop at the surface which is 4.8g/t Gold and 2.3g/t Silver. Basically, there’s some other intercepts around 10g and this is all at the surface, on the very edge of that which is that grey outline. And if these two things are connected and we’re going to drill in between, we’re going to fully understand the size of Gran Bestia, which looks large at this point. If these two things are connected you’ve got a really large pit, which would totally change the scale and the economics of the project. So as we have it right now and the PEA, just the deposit at Cangrejos on the right is included in the PEA. Everything to the left at Gran Bestia is not, so that’s going to be new resources added. And if the two are connected, it’s a substantially larger deposit. So there’s upside on the scale of the project. The number of Gold ounces.

Matthew Gordon: And potentially the grades are… they seem higher at the surface, why is that?

Marshall Koval: The outcrop on the surface that could be a little bit of secondary enrichment from the oxide near the surface. But we do have good Gold grades. For instance the best Gran Bestia  Gold grade was, I believe was hole number 99, was 208m of 0.91g/t Gold and 1.16g/t Copper right from the surface. So like I said earlier we’re looking to see if Gran Bestia will be a higher grade near surface starter pit or if it’ll just add resources to the mine life for the project, so there’s some real upside in the scale of Gold ounces that could potentially be discovered here. So that’s a big upside for investors.

Matthew Gordon: Thanks for pointing that out. And do you think there’s any, I mean, what else do you think the company is going to be able to do this year to, again, just drive that market cap, drive the share price. How are you promoting this for instance?

Marshall Koval: Yeah, you know, it’s kind of been a story that for quite a while we’ve sort of been flying under the radar. We were consolidating our land position in the district. Now we control 100% of the known mineralization at Cangrejos and Gran Bestia. And really until we put out the PEA last year we were pretty quiet. We had some press releases on it. Now we understand the scale of this thing is real. And we’re more active getting information out to the public, generating more of a project definition and I think there’s a couple other aspects of the project that are really positive. If you look at a lot of candy and Copper and Gold project they’re high elevation in Peru and Chile. Cangrejos, the highest point on the projects is 1,300m, we’re 40km from a deep water port where you could export concentrates. We’re looking at developing a couple of different concentrates – a Gold concentrate, that could go to Europe or the US, and then a Copper concentrate with Gold and that can go to China. So the transportation operating costs, related to the proximity, the infrastructure, the low strip ratio that I mentioned earlier, all bode well for the project. And so I think it sets itself apart from other Andean projects because of the proximity to this good infrastructure, low elevation and it is a high-rainfall area and that can all be managed. But if I look at the project layout, we’re doing some other things also, on page number 12 there. We’ve got the open pit. You can see in the upper right-hand side, it goes to primary crusher down the plant and we’re looking at Dry Stack Tailings Facility. And basically that’s really positive from a water-management perspective and environmental perspective. There’s been a lot of issues out there with tailings failures, particularly in Brazil. So there’s a lot of scrutiny raised to that. And the other thing too at the PEA, it anticipates no use of Cyanide in the project. So from a permitting and environmental perspective the PEA project plan looks pretty positive in that regard. Now we’ll continue to evaluate whether we know what the process flow sheet is going forward. But things look good for the project in that context.

Matthew Gordon: Perfect. Well thanks for running through some of the technical aspects there. What are the top five reasons why we should invest into your company?

Marshall Koval: The team has a track record of success. It’s backed by Ross Beatty and several long-term investors that have been with us through the Lumina Copper story. We have an amazing asset in Cangrejos. It still has the potential to grow significantly, we’re exploring it now. We have access to capital to execute and de-risk this project and put it in the position that a major and mid-tiered company can move it forward. We’ve been there, we’ve done this. I mean, we’ve had high-returns for investors in the past. The Lumina Copper story, which is the same group here, raised about $175M to return $1.5Bn to shareholders. We think that the opportunity for large returns to shareholders still exist in this story.

Matthew Gordon: Okay well that’s great. That’s our first time hearing the story, we’d love to catch up with you in the next couple of months and sort of see how things progress with the drilling.

Marshall Koval: Okay. Appreciate it Matthew. Thank you.


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