Impact Silver (TSX-V: IPT) – When the Beat-Boom-Boom-Pat-Pat Like That (Transcript)

Interview with Fred Davidson, President & CEO of Impact Silver (TSX-V: IPT).

Silver is a famously volatile commodity, but hit it right and you can make money. We talk to Davidson, a long-time Silver miner, who talks us through the basics of the macro thesis. Correlation with Gold makes it slightly easier to gauge the temperature when it’s coming and when you are in it. What was less clear is how low it is here to stay.

Davidson has been with Impact Silver for 13 years and mined 9.5Moz. They are a primary Silver producer, at 95% of production skewed to Silver. Many Silver operators have come and gone but Impact Silver remains as a small but profitable producer.

We ask about growth, the options seem to be: 1. Keep producing, 2. Farm-out of one of their licenced areas, 3. M&A. Listen which he thinks is most likely. We want to know what is going to move the dial for shareholders.

They have $4M of cash, no debt, $55M of operating profits, and a market cap of only $46M. They own 2 mills. Only one is operating. And a concentrate sales agreement with Samsung. What does all this mean.

Interview highlights:

  • Company Overview
  • Silver Market: Drivers, Past Tendencies and Predictions
  • Volatility of the Silver Market: What Signs Should You be Aware Of?
  • Business Plan: Has it Changed Over the Years?
  • Scaling Up and Restrictions for Growth
  • Shareholder Returns and Timeline for Bringing Value
  • Cash Position: Will They be Going Back to Market in 2020?
  • Moments to Look Out for From Impact Silver

Click here to watch the interview.

Matthew Gordon: Hi Fred. This is the first time we’ve heard your story so why don’t you give us a 1 minute summary.

Fred Davidson: Impact Silver is basically operating in the second oldest mining district in Mexico. Cortez actually hit out here 500 years ago. We’ve been actively mining here ourselves for about 13 years. We have mined about 9.5Moz to date, at USD$175M with the revenue generated. And it’s just the start on a property that’s over 221km2. We’ve only exploited about 20% of the property. And we’re actively in production and with the current price of Silver, we’re starting to re-expand our production profile.

Matthew Gordon: I don’t know much about Silver. You’re the third Silver story that we’ve talked to. Give us your view of the Silver market. From what I’ve seen, it’s highly volatile and if you don’t know what you’re doing, that’s dangerous. So what’s it been doing and what do you predict it will do?

Fred Davidson: Predicting is more interesting. What it has been doing, it is a volatile animal. It’s regarded partially as a precious metal. It’s also regarded as an industrial metal. Solar panels, et cetera, all require Silver. A lot of the modern computers; disbursement et cetera, all requires Silver. And in fact, you’re in a country that used to have Sterling Silver as your backup for your pound.

So you run into those two things: 1. The precious metal, sort of the poor man’s precious metal, and 2. An industrial product. Traditionally, Silver has traded in the sort of 20:1 price ratio with Gold, and over the last 5, 10 years, it’s gone to the point where it’s getting probably in the area of about 90:1. So there’s a real disparity between the pricing and I think there’s an expectation that’s inelastic, which is stretched beyond its capability of holding its position.

The general market conception is that Silver is under-priced right now. It is controlled because it’s a very small market relative to Gold. It can be manipulated. Look at the Hunt family 40 years ago or so, where they moved it up to USD$40 to $50 in a matter of months, just personal financing. It is volatile. Now that volatility provides opportunity, obviously; somebody who can trade the metal does very well. Somebody who trades our stock does even better because our stock is highly leveraged to Silver. In 2016, we went from about USD$0.15 cents to about USD$1.20 in five months. So a very, very volatile product.

Our forecast going forward, as you can tell, I’m a bit of a Gold bug, but not to the extreme, we’ve seen it gradually strengthening over the last year and a half and it has been very positive heading through some of the volatility and setting a pattern for growth. We’re looking in the sort of USD$22 range over the next year and given the volatility of world events, it could easily exceed that.

Matthew Gordon: I think I want to treat this an educational process for our audience, which is retail investors, high net worth and family officers. It is volatile, but what are the drivers for this? People talk about Silver being closely aligned to Gold: when Gold does well, Silver tends to do well. What are the drivers for that?

Fred Davidson: That’s part of it. No question about it. They say it’s a poor man’s Gold, so you get places like India when you get to seasonal purchasing –

Matthew Gordon: Same as Gold. What are the big drivers to this? What do we need to understand? Because you used a phrase that was quite interesting: “for people who know how to trade Silver…”, it’s great, but for the great unwashed like me, I’m going to be the last man standing, aren’t I?

Fred Davidson: Well, you’d probably be the last guy in the door. Yes, you’re right, that’s the problem. And you’re the last guy out the door. We see it in one of the primary things, as there are very few primary Silver producers. We’re one of the unique animals; 90% to 95% of our product is Silver. What that means is, when you see a reduction in base metal production, you get a significant reduction in the supply of Silver. And like Gold, there’s probably more paper Silver being traded than there is actual Silver. When you get that reduction of supply, the demand doesn’t really change very much. In fact, that’s probably increasing with the concerns about the world with the physical demands for Silver in industrial products. The other part about Silver is, unlike Gold, in most cases Silver isn’t readily recoverable. So the secondary market for Silver, because it’s in minute quantities in your cell phone and what have you, isn’t generally recovered. You’re facing a deficit in supply and that deficit in supply plus an over-sale of Silver certificates that isn’t backed up with actual Silver is a classic short situation. I think that’s where most of us anticipate, although there’s volatility, the volatility is driving northward, not southward in this business.

Matthew Gordon: So if you look at your share price, you quoted some numbers there from 2016 . That was a heck of a ride; at the end of 2000, you went up from USD$0.20 cents all the way up to USD$1.20, but you came crashing back down again. Fairly unspectacular 2018. Same with 2019, until the middle of last year. So this thing moves in violent swings, there’s huge peaks and troughs. How does someone like me or retail investors spot the signs? Because you are saying, ‘the only way is up’, and maybe it is right now. But I don’t want to get left holding the baby here, Fred, so what other things do I need to be looking out for?

Fred Davidson: I think you have to look at continuity. Most of us look in the marketplace and we’ll say, okay, if I’m in this to speculate short-term, that is highly volatile, that’s dangerous stuff.  I don’t pretend to do that. I personally look at it and say, I see as a long-term trend and that’s actually what we did when we acquired this property 14 years ago. We thought Silver was under-priced badly and you go and we managed to get a property that the owner thought it was badly under-priced. We’ve been right. Now during that time, the volatility has been dramatic, but the trend over that period of time has been consistent and has been consistently upward. And I think that you are either a long-term player, believe in silver, pickup those companies or get involved with those companies that have demonstrated history, or alternatively, you run it short-term and you’d be a day trader, and I wouldn’t even try to be a day trader in this market.

Matthew Gordon: So you picked this thing up 13 years ago. What was the plan back then and has that changed or had to change, because of market conditions over that term?

Fred Davidson: Yes, during that time, we picked it up as an exploration project, but it had a history of production, and you look for elephants where there have been elephants. It had a small mill on it at the time. It allowed us to bootstrap ourselves. And that is over about 50% of all of our expenditures in the field have been financed through operations. So we have avoided, or reduced dilution. We then acquired a significant controlling position in two very large mineral concessions in Southern Mexico, in basically the silver belt. Taxco; They were the oldest. We were the second oldest district. We found over 5,000 old workings on this property to date and we still have a lot of exploration to do.

We found over 50 haciendas dating back…hacienda is actually a plant in the local jargon, dating back to the Spanish era. We looked at that. We looked at the mining that had been conducted in the past, and again, you look for elephants where there’s elephants. We thought Silver was a strong product that invariably would be covered; it has. We looked at a prospective ground, which has had a history of production, had a history of elephants. Even though we talk about the Spanish era, the Indians here mined well before that: Gold and Silver. And we then went in as quietly as we could and acquired as much ground as we could, to the point where it’s almost like a hand in a cookie jar; you just pick all the cookies out of it at once. And since then, it pretty well supported our premise that; A. We are capable of supporting ourselves, and B. We are capable of developing what could be an international level resource.

That’s our strategy going forward. We’ve had bumps, such as the price of Silver dropping off, or the crash in the market place, but we’ve been able to sustain our business where many of our peer group has disappeared in that period of time. And we’re still here and we are still growing. So yes, given there have been bumps, our strategy it is the right strategy. And going forward, if we see a solid Silver price, that strategy is going to get nothing but endorsed.

Matthew Gordon: Was there any data that came with these land packages?

Fred Davidson: We probably spent USD$5M or $6M accumulating a huge amount of data in a computer system, an AR system that we have developed that literally has layers of data going back 300 yrs, 400 yrs plus. In fact, in one mine we discovered from old references that were 250 yrs old. When we went out, there was an old Spanish mill and an old underground that they had been mining on.

Matthew Gordon: What does that data look like?

Fred Davidson:  Handwritten books, we’ve actually gone back into some archaeological studies. There’s historical production where the Spanish where talking about bringing 120 mules out of this area to go to Taxco, to the ore. Yes, there’s been a lot of research and we’ve had a team dedicated now for almost 10 years, outing it all together.

Matthew Gordon: That was the plan: tie up and buy up this land package, you are sitting on a district-wide package. But how do you move from Exploration into Development to Production? You are producing today, 9.5Moz. I’m looking at the market cap of $46M and I’m wondering how this thing get some scale to it? Or, does the nature of the commodity – Silver and the volatility of Silver, restrict you from doing that?

Fred Davidson: Well, on an operational basis, we have a number of targets that we move forward when there is loose change, basically. If we make a profit in a quarter, that profit doesn’t really go up because it gets reinvested in improving our knowledge or advancing one or two of the projects that we have at any one time.

But we are cash positive. The strategy going forward is, we have probably 4 or 5 projects in front of us: both Silver and Gold, that sensitive to the price of metal, sensitive to the cash I have in my jeans, we push and accelerate and you know, case in point is we have a volcanogenic massive sulphide.

Matthew Gordon: VMS – we love it.

Fred Davidson: Down in the south of us, we have got a resource there that would normally require the price of Silver at USD$22. Right now, we are working on metallurgical changes to the mining and milling which can substantially draw up that. That coordinated with an increase in the price of Silver, suddenly becomes a mine. And in fact, there are two other deposits nearby that if that becomes a mine, we would then spend the money to bring those deposits up to resource base too.

Matthew Gordon: A good business plan can make a company hugely successful. It can change the dynamic and the growth of the company. You have gone from Exploration into Production, but you are putting the money back into the ground all the time. Isn’t that part of the problem for shareholders? When you are talking to shareholders and saying, ‘trust us, this is a growth story’. How is this thing ever going to move from USD$46M to market cap, to double that? Shouldn’t you be looking to be giving something back to the market if you are producing all of this cash?

Fred Davidson: Yes. That’s one of the balances we do have to look at. There’s real value in the ground. For instance, we have a whole Gold district that we haven’t done any more than just exploration on. If we were to bring that into production, that would have a substantial impact upon the market cap in its own right. So it is one of those balances; you say, ‘Okay, we have this. Let’s go forward on it’. Alternatively, I don’t think many of my shareholders are looking for a dividend, they are looking for us to prove the underlying value of this property. I think we are very capable of doing that. We have had some ‘oopses’, but they have been fairly market-related. But what we have also done in our strategy is we have protected ourselves from the downside, that unlike a lot of my peer group from 10 years ago, we’re not selling marijuana right now. We’re still there. We’re still working on the project. And we are advancing that project.

Matthew Gordon: I get that building up a cash reserve is sensible: it makes sense to do that because it gives you options. But at the same time, we’d like to understand at what point you are going to start leveraging this? Being debt-free is fine – to a point, but you need to ramp this up. You have been 13 years at it, what’s the timeline look like for some of these VMS assets? What’s it going to cost you? When does the market start reacting to that? Can you give us a sense of how you are planning the road ahead?

Fred Davidson: Well that’s true, and we recognise that we have a property that is a Major’s property size. Part of the strategy is prioritising our targets and where we are going to spend our money, and then looking at other targets in the area and we referred our negotiation with one or two companies right now to come in and take on part of what we have got.

Spend their money on our projects.

Matthew Gordon: So we are talking about farm-ins.

Fred Davidson: Exactly.

Matthew Gordon: How far advanced are those conversations?

Fred Davidson: We are already negotiating price. In one case, they have done all the due diligence they feel is necessary. The other one is just initiating that, they have a expressed a strong interest. It is again, one of those projects that we have got that with a finite number of dollars on hand, we are saying, okay, in order of priority, as long as Silver keeps its current price, this one that we would happily have someone come in and spend some serious coin on. There are two ready at the moment: one is very serious. The other one is serious but probably without the number of resources as the first.

I’m hoping you’ll hear later this year that they have gone just beyond discussions, we intend to do something about this fairly quickly.

Matthew Gordon: That’s a nice addition to your strategy. So you are, in that case, a Project Developer – you bring partners in with cash, or an operating partner with cash, and you are also producing your own Silver as well, and producing your own cash. I’ll just come back to the share price again; there was some pressure put on it in December. There was a bit of an overhang. You had a lot of trading and a lot of selling. Was that something you knew was coming down the line?

Fred Davidson: There was a couple of groups that we knew had to get off their position for their own financial situation. I wouldn’t necessarily like to think there was a lot of selling – there was a lot of buying.Because the price did go up while that was happening as opposed to forcing the price down.We saw volumes. Well, I think it was 18M traded in December alone.

I think that the interesting fact is that normally, that would have driven your stock down pretty dramatically. It didn’t. And I suspect it is because people are starting to appreciate, A. What we have as a project, B. The go-forward strategy and C. The very fact that we are so highly leveraged to Silver, if they anticipate Silver going up $1, they can see us going up, percentage-wise, dramatically more. That has certainly happened in the past and I suspect if it continues the way it is going, it will happen in the future.

Matthew Gordon: Give me a break down of your share register. How much is institutional and how much is register and where in the world do they sit?

Fred Davidson: That’s a good question. We have been debating that one ourselves because, as you know, it is kind of hard to sort of dig through it. We found a lot of the smaller funds, the metal funds that are interested in precious metals are there. At any one time, they are probably talking 30%, 40% that Family Office Funds etc, that see us is a play on Silver. The reassurances to the downside are protected pretty well from our longevity and our production. And the upside is that we are highly leveraged to the price of Silver: Silver goes up a dollar, it goes right to our bottom line. We see a lot of those. We do have a fair retail crowd, that are again retailers in Silver themselves and then the insiders and what have you probably running at 10% to 12%, maybe even up to 15%. I’m not sure everybody tells me the truth.

Matthew Gordon: Are you still buying?

Fred Davidson: At the moment I’m stepping back because we keep on having news releases which puts me in a conflict situation. Every time we are interested in buying, there’s a blackout. For instance, the Veta Negra that came out, it sounds innocuous but it has got a lot of potential and I know more about it than we are allowed to disclose because we can only 43-101 results and I have been on the ground watching our non-43-101 team exploring that. So that is something that puts me in a heck of a conflict to be honest – it’s a pain in the butt because there’s real value here and I would like to be opportunistic myself.

Matthew Gordon: But you are smiling. There’s nothing you want to tell us, is there?

Fred Davidson: Nothing I can tell you.

Matthew Gordon: And how much cash are you sitting on today?

Fred Davidson: About USD$4M right now.

Matthew Gordon: And are you going to have to go back to market or is that sufficient for everything you have to do this year?

Fred Davidson: Well the plans we have for this year; I don’t rely on us going to market this year for our program. We are looking as well because, let’s face it, part of the game in Silver production or Gold production is size, and as some of the projects that are also out there, different locations, are of interest to us. They have been unable to raise money because the money the money that has been raised in the industry in the last year, is only going to the more sophisticated companies. There are a lot of Juniors that have taken the program on, after two or three years, they have not been able to raise money, except through their grandmother. It is opportunistic that we can take it in another project to take it to production very quickly.

Matthew Gordon: I’m not sure I understood that; you have got USD$4M, you are not going to raise any more money this year which suggests that you are doing nothing of scale. But you say that scale is important but the institutional money is going to sophisticated companies. So what are you?

Fred Davidson: Oh, I think we are a sophisticated company. People understand our expertise. People understand that it is not easy to make money and it is not easy to set up a mill. Start up production, operate a mine. And you find quite often that there is sort of two cultures here: there’s the geologist culture where they love to find something, then they come up to the edge, look over the cliff and say, ‘God, we’ve got to put it into production.’ That’s a whole different end. Those are the ones we look at, at being opportunistic from our point of view. The reason I brought that up, if something like that came along and had the right size and flavour, that might be a cause to go back to the market.

Matthew Gordon: There are three different models going on here: there is the produce it yourself which you are doing. You’ve got your own mill. You’ve got the farm-out option; and potential M&A, if you deem it appropriate to your strategy.

Fred Davidson: That’s right.

Matthew Gordon: What are the moments that are going to make a difference to your share price this year. You have told me about the VMS potential farm-out there, your production – are you planning to increase that or is that business as usual? Same rate?

Fred Davidson: We will be increasing it. We backed it off about a year and a half, two years ago because we mine from the underground for the most part. Certain mines have certain grades and certain cost of mining. When the price of Silver went down to $14, it was literally breaking even or lose a dollar, so we shut those down. We then produced from the other mines. Now, we haven’t abandoned those mines that are marginal at $14, as the price continues to rise or go up, we will bring them back into action. If we see the continued price that we are looking at right now: let’s say $17, $18, we are probably going to go back to where we were two years ago in terms of production, which is about a 25% increase.

Going forward, if we see a continued strength, then we may push forward and accelerate a couple of our more advanced targets.  Because you have to have money to do that, you have to be confident that the price of metal is stayingthere to justify that Capex that you are putting out in order to put that into production. Over this year, we see a 25% increase over last year and, barring dramatic changes in prices, a further increase next year.

Matthew Gordon: These are incremental changes to the plans. They are nothing significant, unless you deliver something on the M&A front. So what’s the problem?

What’s holding you back though? Is your grade the issue here? You have got varying grades here across a large area.

Fred Davidson: I think the problem we have got, at least has been in the last couple of years, is finite dollars that we could put back into the ground. The market gives people a market cap for discovering than sometimes, quite a bit more than production and there’s a story in the industry called, ‘Up on mystery and down on history.’ The mystery isn’t there because we are producers. The mystery isn’t there until I can wave my arms and say, ‘look, we’ve just hit a hole that is 100m long, running at this grade, market gets excited and you see strength enter the market price. That can ultimately take us the next year up on exploration alone. The price of Silver will also take us the next year up. You can easily see it double.

Matthew Gordon: What are you doing about it?

Fred Davidson: We are borrowing. We are spending money now. That’s why we raised the money in late last year. It takes time to initiate those programs, because again, we want to prioritise it – it’s not as if we have $50M in the bank, and in doing so, it’s going to be two-fold: 1. It is going to help production, 2. It is going to increase expectations as to the future. And that’s the program for doing right now on our own projects. Those other projects – I think the market will see as strikes because people are willing to spend a portion of money on our property. Going forward, it is going to be opportunistic, if there is an acquisition that makes sense, we will do that as well I suspect with the number of projects we are looking at, there’s a decent likelihood that we might do that as well.

Matthew Gordon: Fred, thank you so much for talking to us today.

Fred Davidson: Pleasure. Good talking to you.

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

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

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

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

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

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

Interview Highlights:

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

Click here to watch the interview.

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

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

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

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

Matthew Gordon: What’s happening in Mexico?

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

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

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

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

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

Matthew Gordon: Why?

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

Matthew Gordon: How much does Fund 1 own?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Igor Gonzales: Thank you, Matthew.

Company page:

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.

GoGold Resources (TSX:GGD) – “One of the Best Assets I’ve Had in My Career” (Transcript)

We recently spoke with Bradley Langille, President & CEO of GoGold Resources (TSX:GGD). Previously Brad has created Billion Dollar Gold mines but thinks that this could be the best project he has ever worked on. They have all the cash they need so they can now start to focus on retail investors and help them understand the story.

Interview highlights:

  • Taking advantage of the Mining Cycles.
  • The Los Ricos Project – Finding out what is there and their plans going forward.
  • Shareholders and their expectations.
  • Retail Investment Market and accessing it.
  • Deliverables for the end of this year.

Click here to watch the interview.

Matthew Gordon: We spoke back in April. You gave the introduction to the company then. It was a new story to us. So why don’t you kick off, give people who haven’t heard the story before a one minute summary.

Brad Langille: GoGold is Mexico centered company. It’s really all about the team. The main team players here have been with me, most of them 10-15yrs. Twenty two years in Mexico, building gold mines. Three mines built, plus one that we took over and doubled the production. So we have a lot of experience and open pit gold mining and underground gold mining. A lot of experience with the team in finding and developing gold assets. Recently, we’ve sold one of our gold assets to Agnico Eagle for $95M in 3 years. It was a great gain for us. And currently we have one operating mine, the Parrall Tailings re-treatment. And we have an exploration development asset, which is our Los Ricos asset.

Matthew Gordon: Tell us about Los Ricos, because I’d like to understand your thinking around timing the mining-cycle and timing an exit.

Brad Langille: Las Ricos, in my 27yrs in the mining business, is one of the best undeveloped assets in Mexico. It’s exploration drilling, but in a sense it’s brownfields drilling. And why I call it brownfields drilling is that the asset has a tremendous history. It belonged to a US industrial family called the Daley family. Marcus Daley Sr and Marcus Daley Jr. Marcus Daley Sr was the founder of Anaconda, a very famous US copper producer. And he was one of the Copper barons. His son and his brother-in-law went to Mexico in 1908. The brother-in-law was the US ambassador to Germany in 1917. Not a very good time to be ambassador to Germany. But he also had very tight relations with the federal Mexican government. They were in a civil war from 1910 on. And he was able to get this gold asset from his connections. So they went in there in 1908. They develop the mine. And they mined until 1929. They mined over 1,000,000oz of gold. Very high grades. What they left behind was 25m wide ore zone and they took 2m-4m of it. And that’s what we’re developing to a bulk minable open pit. David Duncan is our manager of exploration. And he’s a real history buff. So when he heard of the Marcus Daley family connection. He went back into the history books but he couldn’t find anything in Anaconda. And he couldn’t find anything in Marcus Daley Jr. But then he researched the brother-in-law, and there was a whole archive up in Missoula, Montana. In that archive, what we found were records that had not been opened for over 70, 80 years. And they are the monthly records of this gold mine from 1908 to 1929. That includes all the surveyed assays, over 12,000 in the mine. What they took out. What they left. What we’re doing right now is grid drilling that first zone. That’s about 1km long. 25m wide and goes down about 900m. So that’s our drilling. We pretty much know where to drill in the main zone. And it’s just definition. It really is in a unique situation. One that I haven’t heard before.

Matthew Gordon: What’s the scale of this project to think for you? Was it going to be?

Brad Langille: From what we know from this historical data, plus 65 more recent drill holes and 30 holes that we drilled. We know we’re onto something that we think is big. It can be world class. We think it’s multi-million ounce. I feel comfortable saying that. We were working towards that 43-101 study. We’ve had a lot of experience developing gold mining deposits. I know of other deposits in Mexico that are multi-million ounce, but they don’t have the grade. What we see here is real good grade. And it’s been demonstrated from our drill holes that this has a tenor of grade that I think will put it into that top 5% or 10% of deposits. And always grade is king. There’s an expression in the mining industry, grade will cover a multitude of sins. So that’s what we have.

Matthew Gordon: You said before that the real focus has got to remain on Los Ricos because of the sheer scale of this. Is that that’s still the thinking?

Brad Langille: That’s correct. I think the real value that’s created in the gold mining industry is from the discovery. And here we’ve gone beyond discovery. We know that there was a gold mine there. We’re drilling off that hill. But from discovery to building into producing. That discovery to development to the point of producing. That’s where most of the value for the investors is made. And then there’s the production. And obviously in the production phase, there’s a lot more value made and on the execution.

Matthew Gordon: When we spoke previously your shares were at $0.34 cents. They’re now $0.42, almost at the year high. Have you been getting quite good traction, quite a good reaction in the marketplace? I know you guys are big shareholders, between insiders and yourself. You have 40% of the stock. You’ve got some nice institutional and a bit of retail following you. So what are they saying to you? Are they saying ‘You know what you are doing, just crack on’, or have they got expectations of you?

Brad Langille: There are institutional investors that have been with us for many years from Gammon, Mex Gold, Nitrate to GoGold. And they know what to expect. We’re real developers. We do build gold mines. And I know, and I think our shareholders know, that ultimately the real value is in having real assets and bringing those assets along to the point, where either they become gold mines or you’re bought by somebody else. And it’s the same roadmap. So those investors are really quite supportive and they’re saying, ‘do what you’ve done before’. And that’s what we’re doing.

Matthew Gordon: I quite like some of the structures that you have created previously, Santa Fortudis for instance. That was quite exciting. And you’ve got a track record of being quite creative with the way that you exit. You’re seeing a big project. You’ve got the capability and we talked previously, you’ve got to be prepared to build it out. But have you got a better sense now from when we last talked about what it is that you have here and what you might do in terms of that exit? You just need to drill a bunch more holes.

Brad Langille: From doing several of these, we know that there’s a checklist. For everybody whether it’s a major mining company or mid-tier. There’s a big technical checklist. And we go through that checklist and we know the steps that you have to take to tick the boxes.

Matthew Gordon: The question I’m asking is, is it like management consultancy? You pretty much work out the answer real quick. It’s just how you then pad out that report. How quickly do management in mining work out what it is that they’ve got and have some sense of where they need to go? Not just the checklist. At what point do you work out what this could be for you to say, ‘We’re going to maybe just navigate that path slightly differently because I think I know where this goes’. How early on do you come up with that?

Brad Langille: A while ago on this one. This one is a very, very unique situation. One that I have not had in my career before. There is enough historical data here. And we have a strong team that when we look at this, we take that historical data and we model it internally. We already have a number. And that’s a very good number. And like I said, grade is king. So we built enough mines and we developed enough mines. We have one of the top percentile projects right now. We have a process we have to go through so that we can display what we have to the investment community and the regulatory community. I see that we have something that is superior. I think maybe one of the best I’ve had in my career. We’re now going through that process so that we can display it to the world. The Denver Gold Show, for example, will be very important, that we’re preparing a lot for that gold show and is big institutional show. That’s in September. And we want to roll this thing out.

Matthew Gordon: That’s where I was getting to Brad. It’s just as fascinating to me that some companies can go through this process… You’re still a small company, $70M market cap. Probably some of that’s due the gold price going up since we last spoke and some of it due to your storytelling. Who knows what that split is. Some companies will go through a journey 2-3yrs without actually knowing where they’re going to end up or working to a plan which says, we know what we’ve got. We know what we’ve got to do here, specifically. And we know what the end point is. Everyone’s working towards the same plan. And that’s what intrigues me about you guys.

Brad Langille: We been here before. And, yes, our market cap is only $70M Canadian right now. Since the first of the year we’ve doubled our market cap. And we doubled our market cap because at the first of the year, we had sold our development asset to Agnico. We bought it for $9M. We sold it for $95M in 3yrs. So we’re very happy with that. And at that point, we had $46M in debt. Because we have an operating mine and that’s what it costs to develop and build it. So now we have no debt. We have a strong balance sheet and we’re on to one of the best gold assets I think I’ve had in my career. And we also have we have a lot of experience in developing this. This is a unique situation. And we’re talking about 1km that we’re drilling off in the zone right now. It’s a 3.2km. We have another area called CR Colorado. That’s your traditional kind of drilling over there, your of discovery drilling. And it’s 1km of this, I would call it brownfields delineation drilling on something because of this mass of data that we discovered. We are already basically know what’s there and now we’re grid drilling it off. So this is such a unique situation. I can see the value that create $70M today. I’ve been here before with with Gammon. We were at $70M and we went into Ocampo. Seven years later, we were at $2.1Bn. So we have a great opportunity here. And a great team.

Matthew Gordon: I buy the track record. I buy the team. Cash generative. Los Ricos is a massive opportunity. I think what you just said about timing it, is really, really fascinating because we talked previously about where the market was. Your share price has doubled since the beginning of the year. I guess you can tell me it’s got a long ways to go. You’re good for cash for now?

Brad Langille: You were very good cash. We’re not going to raise cash. We are in a cyclical business. Timing’s important. I’ll go with what I what I’ve said for years. Our timing is perfect. If you’re there all the time, eventually it will be perfect. We’re mining guys, we have to go with the down-cycle. We have to go with the up-cycle. Right now, I think we’re coming out of the down-cycle. I think we’re beautifully positioned, with one of the best assets I’ve had in my career to ride into that up-cycle, which I believe is going to come in the next 12- 18 months. We’re gonna be solid into the up-cycle. This asset will have superior grade and bulk mining and it’s really going to be one of the assets out there. We couldn’t be in a better place and we’re not we’re not on our knees. We have a strong balance sheet. We have an operating mine. That operating mine is is doing great right now. We just put out a press release a couple days ago. We’re at best production that we’ve had in the mines history.

Matthew Gordon: Great news. Let’s talk about the things that you need to do. Great technical team. You’ve got access to capital of markets. You know how to run mining. What are you doing in terms of talking to the marketplace? You’ve got Denver coming up for institutional guys. But what are you doing for the retail market? How are you getting out there and telling the story to them?

Brad Langille: We do have a lot of roadshows ourselves. We just put them together to talk to people that we know because over the last 20yrs we’ve raised over $1Bn in equity. So we know a lot of people. But Beaver Creek, Denver, Gold Show. We were over in London recently at the 121 Conference. We’re working with Verify, which is a good visualization of what we’re doing. I’m trying to get the data visualized, so I can show our institutional and retail investors to try to get across point of what I see.

Matthew Gordon: Verify is a very good tool. It helps visualise what’s under the ground. But what are you doing to talk to retail? How are you telling this story to that audience, which is going to affect your liquidity? Because the institutions, they come in big money, they sit on it. The retail is going to drive the liquidity here and a bit more volume too. And that’s what’s going to drive the share price up. You’ve seen that work with companies like, RNC is one that springs to mind. But what are you going to do similar to those sorts of companies?

Brad Langille: We’re going to push a lot more media. The newsletter writers obviously are as far as the tie into retail are important that we get the newsletter writers. I’m a I’m a big institutional guy. I raised a lot of money institutionally. But I have a strong team behind me, not just on the technical side. Guys like Steve, who are very good at  newsletter writers, driving some of the social media on the retail side. But we’re on the pink sheets, which we never we want to be on something a little bit better received in the U.S.. And I’m not getting a full listing in the US right now, but we want to make it easier for our US investors to trade in the US. We’re driving a lot of those points and more in the development stage of that program right now. The summertime is is not a great time for a lot of marketing, but we’re we’re doing as much as we can. And into the Fall, we plan on pushing a big program that the retail investor can identify and  get visibility.

Matthew Gordon: We will look out for that. What are the actual deliverables that we should be looking out for between now and the end of the year?

Brad Langille: So as far as the operating mine. What we have been delivering, which is a better and better quarters. It’s a heap leach. So all heap leeches in Mexico are seasonally affected by the monsoon season, which started at the end of June and goes until the 15th of September. We’re in the monsoon and the mine is doing great. We’ve had 5yrs of experience now and our operating procedures, it’s doing really, really well right now. So not much of a hurdle there. The SART Plant at the operating mine will extract a whole bunch of Copper that we have in our system and give us back a whole bunch of cyanide. It’s not an accounting inventory, but there’s a big inventory over there of cyanide and copper when we turn that SART on. And that’ll be ready by the 1st of January 2020. And when that turns on or payback and six months. On Los Ricos, we’re drilling hole number 31 right now. We have two drill rigs doing that brownfields drilling. And we’re gonna step out a little bit too, and throw in a few discovery holes. And we’ll been talking about some of those. We think there’s potential that we’re on to maybe another ore shoot which hadn’t been developed in the past. So we’re looking at the first quarter of 2020 to publish a Resource. We’re leaning a lot on this data that we acquired. And a lot of that data is not just sampling data. There’s a ton of metallurgical data. And that’s one of the boxes you want to tick. You can have a great grade and if you can’t recover it, it’s waste. We got a lot of information on that as well. So we’re gonna come with a lot of comments as we compile this and then we say, ‘OK, this is what the metallurgical shows. Now we’ll do testing to demonstrate that’. But we already know the answer. I can’t say that enough. Where we’re drilling right now. We basically know the answer before we’re asking the question.

Matthew Gordon: So that’s that’s my sense of of this. It feels like what you’re doing is just you’ve got to go through a process which is understood to be able to go, ‘I told you so’.

Brad Langille: That’s where we are. We’re leaning along in history of this project. And I think that’s the theme on the wall behind me today. I’m in the the Lodge, a very historical lodge. So I’m on vacation today. I’m off to the mine on Sunday. History has a lot to do with what we’re doing right now.

Matthew Gordon: It’s historical data. Some people lean on history, others lean on historical data to inform the future.

Brad Langille: This is historical data which was done very well.

Matthew Gordon: And well found. Brad I think that’s a fantastic update. I really appreciate it. You’ve got to keep us up to date, especially around September time when you’re coming back out to market. I think a lot of our investors have been chasing us for information about you. So it’s been great to have you on today. But keep that information coming.

Brad Langille: We’ll be doing that. We’re very excited about the Fall. We’re a little bit in the summer doldrums. It’s very quiet, but we’re getting our ducks in a row and it feels good.

Matthew Gordon: It’s very exciting. I think the share prices reflect that. Let’s see if you can keep that going.

Company page:

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.

SilverCrest Metals (TSX-V: SIL) – 121 London Mining Conference (Transcript)

President of SilverCrest Metals (TSX-V: SIL) joins us at the London 121 Mining Conference for a chat.

Click here to watch the interview.

Matthew Gordon: I’m here today with Chris Ritchie of SilverCrest Metals. How are you?

Chris Ritchie: Doing well, thanks for having me.

Matthew Gordon: You’re in London. You were here last year as well obviously. But tell us why you’re here this year?

Chris Ritchie: So we just put out a new economic study for our project. So definitely something we get on the get on the radar for people. We been to a few these conferences before. We don’t have many shareholders over in this part of the world. We’ve got a very tight shareholder base with my old clients from a previous life of being on the sell side. And getting some new faces and names to exposure would be would be great for us.

Matthew Gordon: Yeah I mean we’re hearing that a lot. So I mean tell us a little bit what’s happening in the North American market with regards to mining natural resources.

Chris Ritchie: In a broader sense, what you’re seeing is people chasing performance. And the mining industry has as anything but performance for a decade. So what you’re seeing is funds looking elsewhere, and money being pulled out of those funds. So forced selling at lower and lower levels, and selling begets selling. And now we’re at an issue with mining where we’re at multi decade lows in terms of mine life. My favourite chart it was given to me by one of our holders, Donald Smith who was trained by Benjamin Graham. And if you look at a ratio of a basket of commodities to the S&P, it hasn’t been this divergent since 1970. So the opportunity sets interesting, but who can survive this time frame is the issue.

Matthew Gordon: Why don’t we start off, acquaint some of our viewers with your company. Why not give us a two three minute review. We’ll get into some questions.

Chris Ritchie: Very quick and dirty would be three things. One is that we are in Sonora Mexico, Northwest Mexico, and we discovered, permitted, financed, built on-time under-budget and operated the mine next door. And we sold that in late 2015 and this assets 25km away. So the first part of that story is that we’ve done it before, on-time under-budget. We know the people, the community, we’ve got a license to operate. Part two is that we’ve got the third highest-grade primary Silver deposit in the world. So when Silver prices aren’t doing that well, and you’ve got economics that’s.

Matthew Gordon: Lowest quartile.

Chris Ritchie: Exactly so that that’s there. 3. The third part is what’s left on the upside. We’ve been able to hit on about 70% of our drill holes. And are finding cost per ounce to date is $0.25. So those are the three main things. I did mention that we have our preliminary economic study (PEA) that came out last week. It shows that in the first four years of production, we’ll be able to produce an ounce of Silver at less than $5. So here we are with half the industry struggling to make any money we’re gonna have roughly $10 margins at today’s prices.

Matthew Gordon: Which is incredible.

Chris Ritchie: We’ve had a payback period of nine months.

Matthew Gordon: So let’s put that leads on quite nicely to finance. Why don’t we cover some of the basic numbers for the company?

Chris Ritchie: Sure. So I mean one great thing is we have CAD$33M in cash. We’ve got about $4M in warrants coming in. That covers covers us for about a year, in terms of our budget. In that economic study, we need USD$100M of capital. And again at today’s prices that’s roughly a nine month payback. So again a big majority of that’s going to be in debt. So it’s not much equity or any equity left, on that point. Alongside that my spending 13 years on the sell side, we have a very strong shareholder base. So insiders on 16%, SSR Mining, which I’ll touch on, they bought 9.9% of us. They’re a major it’s about five times our market cap. I was in New York for seven years. There’s a big chunk of institutional investors who are in the story on that standpoint. So again looking at the economics and why those people have been interested and are supportive, is again in and around today’s prices, we should have a 78% IRR, in a nine month payback. So one of the beautiful things for people who are not really trying to pick their timing on the market, is we did a downside scenario case in that study. And if you use $1,110 Gold and £14 Silver we still have a 64% IRR and our nine month payback, goes to 11 months.

Matthew Gordon: Right. Okay. So there’s some some pretty impressive numbers there. So what’s the problem you’re trying to address? I mean you’re over here in London, you talked about exposing yourself to more investors. I’m assuming you want retail investors because of the ability to drive well liquidity, bit of volume?

Chris Ritchie: Yeah I think it is interesting. Professional money managers are very challenged, they have to make money monthly. They’re competing with other funds that are having performance in other sectors, and that’s how they get capital. So they’re very short term in nature, and they wish they could be longer term. Whereas if you’re able to look at a longer time horizon pictures tend to get more clear. So again if you look at where we are as an industry and where the cycle is, and if you look at our ability to withstand that downturn, and then look to what the upside is, a retail investor knowing that you still have an 11 month payback at $1,100 Gold, you can buy this stock. And again there’s still risk related to mining, I’m not trying to downplay that at all. But you have a much better resilience to how long this cycle changes. And then your upside is something you get with the drill bit, commodity prices changing. And then potentially many people would say that we’re a potential takeover target given our robust economic sense and defensive characteristics.

Matthew Gordon: I mean clearly when you are talking to institutions, they’ve got a whole bunch of different concerns. What do those phone calls sound like at the end of each month?

Chris Ritchie: Broader based, I mean you can look at time zones. I mean a lot of people in Europe tend to look sort of in through Africa and places. A lot of people in North America kind of go Canada, U.S. Mexico and whatnot. People ask about Mexico, and they’re certainly good parts of Mexico and bad parts of Mexico. But I mean we’ve been in this area for 13 years. The largest political organisation in Sonora is the Cattle Association. They have an export agreement with US for beef. We’re in the cattle association. We have our own ranch. Now there was a spill in 2014 by another mining company that didn’t clean it up. We spent $50,000 of our money buying fresh drinking water for the people, the horses, the cattle. Our CEO’s son and daughter live on site, and they have lived on site for a long time. So it’s a question we get asked, but it’s not something we’re overly concerned about. Again industry wide, Why do I need to invest in the space? Which kind of applies to anyone on that front. Permitting, people asking about permitting.

Matthew Gordon: But can I ask what is the answer to that question?

Chris Ritchie: Which one?

Matthew Gordon: Why should I be investing in this space? I mean is mining still relevant?

Chris Ritchie: Well again I was on the sell-side. I quit to take this job. And mines take on average about 7yrs to come online. So when you talk about 50%-60% of mines not making money today. That also means that the next asset most companies have in their portfolio, don’t make economic sense today. So no one’s spending. A lot of people are doing this waiting for that commodity price to turn. And it’s interesting for a lot of people, if and when that happens. But they don’t really have many strategic decisions to make today.  So if you have an asset that can withstand the downturn, and then participate with the upside, that’s pretty significant. Because you’re not going to see new supply coming online until the price moves. Then the investment cycle starts and then you’ve got the 7yrs.

Matthew Gordon: Yeah I mean there’s 7-10 years people people use different different numbers but the net result is the same. It’s takes a while from when you start when you get into production.

Chris Ritchie: We’re in a multi decade lows in terms of my life right now.

Matthew Gordon: For sure. So given that what are the challenges that you faced last year through to this year? You’re sitting on a bunch cash gives you lots of optionality. You’re the bottom quartile in terms of cost. Fantastic. So quite a you’re quite attractive for lots and lots of reasons. But what’s happening next? Where’s the value come from for new investors coming into the story?

Chris Ritchie: The best analogy for that is our one key area within our mine is extremely high-grade. It’s the first ore we’re going to access in production. Our first drill hole into that area was 3.5m wide @ 8kgs. And obviously we got excited. We threw four drill rigs at it. And 4mths later we had 40Moz at over a kilo. So you know if you look at the PEA that assumes 13.7Moz of production each of the first 4yrs, if you assumed roughly 15-16Moz are needed to get 13.7Moz. If you can find 30-40Moz of high-grade, in a short period of time. I mean that conversion to free cash flow. Again 13.7Moz in the first 4yrs. That’s $115M of free cash flow per year. And our market cap today is $270M. So the speed of finding high-grade can drive the can move the needle very very quickly on the drill bit.

Matthew Gordon: Of course. But that’s you know, ifs and buts. So what are you guys doing to ensure that, as much as you can?

Chris Ritchie: Well we’ve had 15 drill rigs on the property today, and that’s one of the bigger drill programs out there. Half of those drill rigs are trying to convert the Resources to Reserves just to increase the confidence, and remove some of that risk of having a more tangible belief that it’s there. And we can control it and understand that. And then again the other 7 are looking for new new ounces. The beauty with us, we’re actually a small mine. It’s only 3.8Mt are in our PEA. So even if we find some lower-grade ounces. Maybe there’s the potential to go from 1,250t per day to 1,500tpd, 1,750tpd. And see how it plays out. So it’s any ounces we find now that our economic, add some leverage, get some economies of scale. So the first thing we’re doing, is drilling aggressively. In terms of also mitigating risk, within our PEA we used very prudent, I won’t say conservative because you don’t know until you’re actually producing. I’ll say very prudent inputs. So the recoveries that we are seeing in the studies. We used 4%  lower than that in our PEA. The mining method we used in our studies, was all cut & fill, which is the more expensive method. And there is a good chance that part of the Resource we could use is long haul, which would cut costs. Grade capping, conservative on that front. And again we didn’t assume any upside on the throughput. Maybe we can get lucky with building a power line, which would have significant lower power costs. So we made sure that it was given a 78% IRR. If people don’t believe your inputs, the thing goes in the garbage. So we want to make sure we started out so people can go here’s a snapshot in time. Here’s what it’s worth. We believe you or we’re gonna make our own adjustments and come up with a number and everything is kind of gravy hopefully. And that number today is trading at about 0.65% NAV net asset value.

Matthew Gordon: Ok. So yeah I agree there is a conservative assumptions.

Chris Ritchie: That was the attempt.

Matthew Gordon: Which is great but yet the IRR is definitely up there. We’ve been talking to people with much be lower IRR’s this week, who have the slow and steady approach. So in that context, how do you get the balance between running the company, mitigating all of this risk, all these moving parts, where things something goes wrong it affects everything down the food chain and creating shareholder value? Those are two very different skill sets.

Chris Ritchie: So our CEO is a geologist and a mining engineer. He’s built six mines, and again including the one next door. Part of my role of coming on was to sort of spend more time in the capital markets and whatnot. So that the people who are onsite adding the value, can spend more time on site adding value. We recently added a COO, who designed and built Canada’s largest Gold mine. He joined the company, on the board last year, but officially a COO at the end of last year. And threw in about $300,000 of his own money on day one. So again adding some more bench strength to the technical team, is a significant part. You know we’ve got a good cash balance. I mean December of 2017 we had $3M on the balance sheet. So we’ve been slowly making sure we pick up that cash balance. You know what we’re doing in the asset again, doing infill drilling to make sure we have confidence in what we have in place. Making sure we’re communicating with shareholders all the time. And we’ve got a very strong shareholder base. I mean most of the shareholders are my clients from the old days. So just making sure that communication and trust and transparency is there.

Matthew Gordon: Right. But those are institutional guys because in presumably, the big guys right. And you know their very technical and knowledgeable in terms of what they want, but at the end of the day they still need share appreciation. That’s the key driver here. Are they telling you what to do? Or do they sit back, in terms of strategy I’m talking about, not technically. Are they talking to you about what they think you should be doing in terms of creating a bigger entity, because you market cap is goods, it’s like $300M. That’s pretty impressive. But I think from what you’re saying, you feel it could be more.  Are you frustrated with the performance or you think it’s OK.

Chris Ritchie: Like no,  if you look at our performance versus the GDXJ which is an ETF for junior miners. I think last year that GDXJ was probably down about 20% percent, while we were up 100-150%. I don’t know the exact number. So it just shows that again while the Gold and Silver prices are low, we’ve we’ve shown that we’re a vehicle that can add value. And that’s mostly been via the drill bit. So what we’re getting from our investors is, we’ll give you the latitude to go out there and drill like crazy. Because again that’s what’s been driving share performance. So the big bigger and broader we can just make this asset, in terms of again leverage tonnes or high-grade. That can move the needle very, very quickly, on that front. So that’s their main push on that, and continue to de-risk. Get that permit, which again where we’ve started a long time ago. We’ve got one major permit left. Hopefully that’s something that happens this year. And they’re also telling us to hurry up and drill, because again with an asset like this, there’s been a huge wave of consolidation been taking place. If you can’t get growth and upside in the commodity prices and working, you’ve got to manage costs.

Matthew Gordon: That’s the next question which is, I mean the other way this works is if Silver price goes up. Right. And what’s your expectation in the marketplace at the moment, because it’s been a very confusing year for a lot of commodities.  People have catalyst events happening, where normally it would have an impact. It’s not. What’s happening in the world of Silver?

Chris Ritchie: I’ll answer it two fold. And I would say the way to answer that is very dependent on if you’re talking to a retail investor, institutional investor or a management team trying to run a business. And I’ll start with the management team trying to run a business. If you’re a management team trying to run a business, your assumptions on Silver is that it’s going to be here or lower for the next five years. Because if you’re not doing that, you’re not being very responsible. So looking for low-cost, low capital intensive assets that can give you more margin to wait it out, is a prudent approach. If you’re buying something top of cycle and the market rolls, your head’s on the line. If you buy something and the market rolls but you’ve actually increased your margins and you’ve bought defense you get a pat on the back. So again that’s the uniqueness of our asset. Now if I was to tell an institutional investor, ‘hey look how good we are at $1,100 Gold or $14 Silver’,  they’ll say ‘great why am I buying if it’s going down’. So that that’s part of it. And the same as the retail investor, I would say same thing. If you don’t have the monthly pressures, but you think it’s interesting long-term. Having something that is more defensive while you wait. Now we might not move as much as another name that’s got $13 cost and Silver goes up $2 and those on the margins go up 200%. But it doesn’t mean you solved the problem but what assets next in your portfolio. Doesn’t mean you’ve all of a sudden got cash on the balance sheet. It’s one might have short-term share price performance, but again how to manage a business is very different and under all those scenarios. That’s why I wanted to answer in those ways.

Matthew Gordon: Yeah I think that’s fair enough. You’d need to look at it like that. Okay.  Investors are always going to be looking for share appreciation. Okay so you can do that by drill bit, by expanding out, building out your Resource.  Fantastic.  You did through M&A, any M&A planned? Ot have you got enough on the books?

Chris Ritchie: I think our shareholders would be very happy if we just put our head down, and focused on this asset, and did not get distracted. Any M&A things that we’d be interested in, are very much, things in the neighborhood to $2M-$4M that might be something close by that we can truck to our existing….

Matthew Gordon: Bolt ons?

Chris Ritchie: Yeah and get that economies of scale sort of thing. And again we’ve been in the neighbourhood for 13yrs. So knowing knowing that all those things are available, and  everything very low-cost but very potentially high-return. Where longer term if you said 5yrs from now, you’re in production, you’ve got a bunch of cash on the balance sheet. If the market was still soft, maybe we’ve had a vehicle that could re-rate, cash and we could be able to self-finance future development, and grow this company while other people weren’t necessarily in that position. And if the market turns 5yrs from now, maybe we’ve actually enjoyed that downturn to accumulate those assets and build a bigger, better stronger company.

Matthew Gordon: That’s interesting Chris. I’m going to wrap up there. We’ve run out of time. You need to get back to the 121 conference. How are you funding it?

Chris Ritchie: It’s great. It’s good. Like I said we have most of our shareholders over North America. So just be able to tell the story and get people’s feedback over here is a good use of time.

Matthew Gordon: Yeah, it’s a very good conference I think you’ll enjoy yourself. Thanks very much for your time.

Chris Ritchie: Thank you.

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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.

Sierra Metals (TSX: SMT) – 121 London Mining Conference (Transcript)

CRUX visited the London 121 Mining Conference and spoke to Sierra Metal’s CEO Igor Gonzales. Hear what he had to say about his South American based Poly-Metallic mines – the Yauricocha Mine in Peru, and the Bolivar and Cusi Mines in Mexico.

Click here to watch the interview.

Matthew Gordon: Hello Igor, how are you?

Igor Gonzales: Hello Matthew, how are you today?

Matthew Gordon: Fantastic. Lovely to have you in London.

Igor Gonzales: Yes it is.

Matthew Gordon: Now, I always start off and I get people to do just a two three minute helicopter view of the business.

Igor Gonzales: Okay. Sierra Metals is a poly-metallic producer that has operations in two very well established mining jurisdictions which are Mexico and Peru. We have one… our largest mine in Peru which produces three types of concentrates. Lead, Copper and Zinc concentrates. It’s the  Yauricocha mine located at 4,700m  above sea level. Then we have two other mines in Mexico. One is the Bolivar mine in the state of Chihuahua. Bolivar is currently at around 3,600t per day in throughput and then we have the smaller mine which is the Cusi mine which is a silver mine essentially and now running around 1,200t per day.

Matthew Gordon: Okay and give us a sort of sense of the size, of the scale of the business

Igor Gonzales: Well we will generate an EBITDA this year in the order of $90M to $100M. Our revenue is in excess of $250M. And our debt is about, our total debt around $65M. And so we generate positive cash flow and we finance all of our capital requirements and with our own cash flow.

Matthew Gordon: Thank you very much for that. You’re obviously here in London. At the 121 Conference. Why are you here?

Igor Gonzales: Well we want to promote our company. we think that we are a growth story.  We’re a success story in terms of exploration results. Growing our reserves and resources, and putting those resources and reserves into operation. We’ve been growing our throughput steadily in the last three years. And so we will want to continue to do that. This year is the largest investment for us in terms of capital requirements. We will invest in the neighbourhood of $83M  just to grow our operations in both in Mexico and Peru.

Matthew Gordon: That’s self-funded?

Igor Gonzales: It self-funded, all funded from our cash flow. We think that’s a very attractive story for any investor because or where we have a solid base from which we’re growing our business which is where we’re growing our resources and reserves and then we’re growing our production plants. And therefore our unit costs will drop as a result of that. And our investors will benefit from that lower cost production.

Matthew Gordon: Okay. You’re listed on the TSX obviously

Igor Gonzales: We are listed in the TSX and then the New York Stock.

Matthew Gordon: New York Stock Exchange. Okay, so those markets at the moment seem quite illiquid. And a lot of companies are coming to London to other parts of Hong Kong other parts of the world looking for new access to new investors. What are you trying to do? Are you trying to get better liquidity because you’re unhappy with perhaps the market cap now. I mean what’s the goal for you?

Igor Gonzales: Yes we would like to have better liquidity. Our liquidity hasn’t been all that great. As we moved from Toronto to New York we improved our liquidity. However we were also looking for other areas where London could be one of them. But one of the issues we will face is that we have a major shareholder that holds 52% of the company. And he has that 52% divided into two soft fund.

Matthew Gordon: This New York fund?

Igor Gonzales: Yeah. Our fund. But one of the funds is due now. And so he will have to deal with that fund eventually and that will bring a lot of liquidity to our stock

Matthew Gordon: New shares into the market. Not new… Shares into the market. And so who are the other major shareholders at the moment?

Igor Gonzales: BlackRock and Ingalls And Snyder.

Matthew Gordon: That’s right. So are you… There’s quite a bit of your shares are taken up with major institutional money. Are you looking to drive interest from the retail market, High Net Worth family office type?

Igor Gonzales: Yes. That’s our target because we think there is a lot to gain from our story and our ability to generate cash and revenue and earnings per share.

Matthew Gordon: Again I think like a lot people you’d say you’re undervalued. And if you didn’t, you wouldn’t be doing your job. So let’s take that as read. What is the growth… What’s the growth actually going to be delivered by for these shareholders? You know your share price is what it is today. You are funding yourselves, self-funding. You’re growing, it’s a big growth story. People look at your presentation which I encourage them to do on your website. There’s a big growth story there. You’ve got three quite good assets. Where’s the upside going to come for new investors?

Igor Gonzales: I think the upside for new investors is based on our growth. our growth is quite steady and the other area where we bring a lot of value to our investors is the way we spend our capital. our capital spent it’s quite with very high ROI’s. And the reason we do that is because we do small increments in capacity to our plants. and we use local talent local engineering firms construction and labour. And therefore we’re very efficient in the use of capital because we’re in two well-known mining jurisdictions. We don’t need to go outside of Mexico or Peru to find the skill we need to grow and that makes the capital we use… it’s quite profitable in the sense that we get a great return on our investment and the for the expansion we’re doing in both Mexico and Peru.

Matthew Gordon: Okay. So in that case your AISC is what it is. How are you going to drive that down if you’re already very efficient? Is that something that you’re trying to do?

Igor Gonzales: As we increase our throughput. Ours are fixed costs which are our operating costs will start dropping round and our net cash flow will increase and that will drive the earnings per share.

Matthew Gordon: So it’s going to be coming from grades?

Igor Gonzales: Grades, higher throughput

Matthew Gordon: So if we look back at 2018, what would you have done differently?

Igor Gonzales: I think we would have done a similar story but faster if we could have.

Matthew Gordon: Yeah. Interesting. Okay. That’s your big learning from last year?

Igor Gonzales: Yes probably. So yeah. And we’ve been slowed down by permits for example. we would have probably applied to permits much earlier than we have and that’s a learning lesson from us where we could have done this faster. Had we applied for permits especially in Peru. Peru it a jurisdiction where there’s a lot of bureaucracy in the permits. And had we applied earlier and moved on those permits faster, we would be…

Matthew Gordon: You’d be there today. OK, so if I look at 2019. People always talk about catalysts and catalysts for growth. How do you balance running a company and all the risks associated with that and driving shareholder value, share price appreciation?

Igor Gonzales: I think we try to balance that by trying to meet our targets in being responsible in our spend. We try to apply the capital where we need it. We try to be very disciplined in our production and our results. and we show that quarter over quarter. and and by doing so then we will represent to any potential investor a solid story a responsible company that will look after the interests of their shareholders by respecting our budget in numbers by meeting our metal production by meeting our costs by meeting our capital requirements by respecting the all the framework that it’s required to operate in the two countries we operate. I think that’s how we show to our shareholders that we’re a responsible investor and someone you can trust and someone you can you can go there and and rely on what we’re saying. We deliver on what we say.

Matthew Gordon: Yeah I think it’s a very interesting story. It’s kind of slow steady growth as opposed to telling people they’re going to get multiple baggers.

Igor Gonzales: That’s right. And with that we have a track record that it’s very clearly proven.  We’ve been delivering on our commitments to the market in a very steady pace.

Matthew Gordon: Okay. And how are you going to manage these new investors coming in, how are you going to manage the stories to them that you’re telling?

Igor Gonzales: I think we’re going to manage them by and continue our path. Of delivering results continue our growth in a more dramatic way. If I could use that word because we were looking at larger expansions in the future. And once we’re in that position and then we can then look into M&A’s and the like. In other words a growth story altogether.

Matthew Gordon: Right well that’s what I want to come onto. But first let’s talk about the markets. You’re poly-metallic, which basically means you’re into lots of things: you’re gold silver copper lead zinc. I think that’s right. You kinda spread the risk but you’re also quite exposed to the commodity market generally at the moment because it’s pretty flat.

Igor Gonzales: Yes it is. It is but at the same time we’re exposed to precious metals and we’re exposed to base metals. And when one does better than the other then we have a natural hedge there. By proves in five different metals. unfortunately we don’t choose whether we could not be a poly-metallic producer because that’s the nature of our resources. But what we can do is we can gauge our production according to the needs of the market depending on the metal. I’ll give you a good example for that. Two of our mines the Yauricocha mine and the Bolivar mine are copper producers that we produce copper concentrate. And if, had the market, had the price of copper would go up we would have the flexibility to increase our throughput in terms of copper for example. And likewise in zinc or in lead, we have some flexibility in our production to try to meet the needs of the current metal market or the metal price for example there is a trend that zinc and silver will… might go up in the rest of the year then we can move into those directions if we need to.

Matthew Gordon: Right. But again you’ve got to be able to produce those efficiently. So how does a poly metallic company operate?

Igor Gonzales: The poly-metallic… What happens in our Yauricocha mine, the truly metallic, poly-metallic is that we have three mines in one. We have one mine that’s truly metallic has all the metal in it. The other some mine of Yauricocha has essentially copper. And then we have lead and zinc on the other one. So we can in our mine plan we can then gauge that according to our needs and put more emphasis in one versus the other. Without of course stepping out of the boundaries of our efficient cost structure.

Matthew Gordon: Right. So you’re spending a lot of time working on efficiency. And therefore margins.

Igor Gonzales: We are. For example putting a lot of emphasis in our planning team we have incorporated in our team very senior planners. Now we have a senior planning team in our corporate office that provides services to all three mines so that the mines do the short term plan and the senior team does the long range planning trying to obtain value from the different attributes that each mine has.

Matthew Gordon: You mentioned the word strategy a few minutes ago and part of that strategy is M&A or M&A potential. So you’re running three assets at the moment you’re optimising those continually, you’ve got a planning team working on that. How do you go about identifying new assets, a lot of competition and not a lot of good assets.

Igor Gonzales: Yes we usually get assets and this… We have this planning team that will go and evaluate these assets and compare to our assets. And of course estimate the potential of growth operating costs location geography infrastructure et cetera. And based on that we’ll say  yes or no to any potential possibility of M&A. We would like to stay in a jurisdiction that we know where we’re comfortable and how are we… We don’t discard other jurisdictions just because of their geography. But we are quite comfortable where we’re operating.

Matthew Gordon: Yeah well I think that’s smart. Yeah very very smart. So running a company is about managing risk every day. There’s always something that can go wrong.

Igor Gonzales: Yes.

Matthew Gordon: Okay. Are you frustrated by the market? Because that’s another layer of risk which you’re having to deal with.

Igor Gonzales: I am, we can not manage the market. We cannot manage the prices. We don’t have control of the prices but we do have control in our own cost structure our operating costs our capital efficiency our ability to deliver our production into the market so that’s what we have the control and that’s where we have to work in. We don’t have to worry so much about copper price because we don’t dictate the copper price. But we have to be as efficient as possible in our copper output per unit cost.

Matthew Gordon: And you think compared to your peers, you’re achieving that

Igor Gonzales: Yes we are. We’re competitive.

Matthew Gordon: Okay. So big question to finish with. Is mining still a relevant investment class?

Igor Gonzales: The world is going to continue to grow and there is many countries that still have not fully developed. and those countries will demand metals. For the long run.

Matthew Gordon: And you’ve got the right metals.

Igor Gonzales: And we have the right metals. We have the industrial metals and we have the precious metals. So as far as the grow the world grows we have I think in mining a reliable industry that can sustain that growth for both the industry and the humanity.

Matthew Gordon: What do you think the mining industry or even your company needs to do better to explain to new investors coming into this space with some spare cash. What do they need to do?

Igor Gonzales: Mining has been seen as an industry that is not friendly to the environment. What I can say to new investors is that mining can coexist with environment as a matter of fact we do that. There are farming areas right beside our mining operations today with the available technology. You can work hand-in-hand with the farming hand-in-hand with animal raising at hand-in-hand with other industries. Give you a prime example. All of the water that leaves our properties in Peru for example are all treated to water quality standards so the farms or the users down the road cannot complain and then we’re monitored by third parties by the authorities we get audited and everything else. So I think the technology has made mining a much more friendlier industry than it was in the past. Yes we do move earth from one place to the other but underground mines are friendlier than open pit mines for example in that sense. But nevertheless all the waste rock facilities now are monitored they have drainage they have water contention they have water and they have canals that divert water from entering into those facilities et cetera. So the technology is there. We have continuous monitoring of all of our effluent including the camp effluents and everything they all have to be treated.

Matthew Gordon: I think that’s a great point. Igor Gonzales thank you very much for coming and seeing us.

Company page:

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.

Golden Arrow Resources (TSX-V: GRG) – Leveraging the Price of Silver in Argentina and Chile (Transcript)

We interviewed David Terry, Director of Golden Arrow Resources (TSX-V: GRG), the Gold, Copper, Silver, Lead Producer and Explorer in Argentina and Chile with 4 assets.

David’s top reasons to invest:

  • Experts in exploration in Argentina.
  • This team has found 4 significant deposits over the last twenty five years.
  • Ability to finance the company.
  • Portfolio of 4 projects in Argentina and Chile
  • Have structured partner JV’s.

Click here to watch the interview.

Matthew Gordon: Hello David. How are you?

David Terry: I’m fine. Good morning.

Matthew Gordon: Fantastic, thanks for taking the time to talk to us. I know it’s early there. So David I thought we’d kind of kick off by introducing Golden Arrow to our audience over here in Europe. Perhaps you can start by telling us a little bit about yourself and your relevant experience.

David Terry: Well I’m one of the directors of the company and I’ve been with Golden Arrow since it was formed in 2004. Golden Arrow is an Exploration company has been mainly focused in Argentina over most of its life, although it’s just recently branched out into Chile and acquired two advanced stage projects in Chile. But  we’ve been fairly focused on Argentina for most of the company’s life. I’m a geologist by background, and so I’ve been involved in a lot of the property, review, acquisition, Exploration program, management and that sort of thing.

Matthew Gordon: Great. What were you doing before that? Where it have you worked?

David Terry: I started off my career working for several large mining companies. My first work actually as a student and then went on after university was with the old Consolidated Goldfields, which was a large company back in the day. Worldwide scope and I worked for the North American subsidiary of that. And I will work several other large companies including Kamenco, Hemlow Gold and finally Westmin Resources, more of a medium sized company acquired Boliden, the Swedish mining company, in the late nineties and worked for them for a while too before sort of starting to focus on on smaller companies.

Matthew Gordon: Right. You’ve been around the world, been around the block. And how has in which aspects of that is most relevant to what you’re doing at Golden Arrow Resources.

David Terry: Well it’s all a cumulative thing with when you’re when you’re a geologist focus on exploration. The more projects you work on and the more different areas, the more types of geology and mineralization you see. It all adds to your experience and helps making there hopefully the right decisions, when you’re working on a project.

Matthew Gordon: But you’re an explorer not necessarily a developer or producer?

David Terry: That’s correct. I focus on… I find the metals.

Matthew Gordon: Find the metals, good. Now tell us a little bit more about the team that you’re working with. Obviously you’ve got quite extensive team there. I mean who are the most active and relevant members of the team in terms of where you’re right now?

David Terry: Well Jo Grasso, the CEO and founder of the company, has been an entrepreneur, who’s been focused in Argentina for the whole time he’s been in the mining sector, more than 25 years now. And so he’s the is the founder and leader of the company and certainly one of the largest shareholders. We’ve got Brian McEwen, who’s the Vice President of exploration. Again very experienced mining professional running the exploration and he did a lot of the work on six years which is now part of the operations of bringing that along through all the different exploration and development stages Niko Cacos He’s a vice president with the company he’s been there since the beginning. After a lot of the administration and and business deals and that sort of thing. In the company, we’ve got Alf Hills on the board, who’s very experienced mining engineer. It’s been a big help since we’ve sort of transition from being solely an exploration company to having this production profile. And John Gammon and other very experienced geologist on the board. Lou Salley, a very well known legal Mining lawyer based out of Vancouver here. We’ve got a very well rounded and experienced team, and especially we’ve got an excellent staff in South America, based in Argentina.

Matthew Gordon: Yeah I guess that’s critical. Working in South America. South market generally it’s not easy unless you’ve got a local team with local expense. I mean before you can get into the projects themselves, can tell us a little bit about the Grosso Group as a whole. It’s a relatively new enterprise is it or has been around for a while?

David Terry:  Grosso Group has been around since the early 1990s and so it’s since it’s a management group that has several public companies within its portfolio. And and Golden Arrow is one of them and other one is Bluesky Uranium right now that’s quite active. Bluesky has discovered a Uranium Vanadium deposit also in Argentina.

Matthew Gordon: But tell me about the Grosso Group. They they have other companies in the group say what is their focus? I mean are they are they large enough to be able to focus on four different projects at the same time or is this project their number one focus?

David Terry: They Golden Arrow right now it’s been the flagship company, if you want to put it that way. But the idea with with the Group sort of set up is to share overhead costs between companies. Obviously there is some similarity between the boards and management of some of these these companies, but there’s also differences as well. And so it’s really a much more efficient way to run public exploration company.

Matthew Gordon: Yeah. But I guess with my investor hat on you also need to or you want to see focus. You want to know that the time, money and effort is being spent on the project that you’ve invested on.  It’s just interesting to understand the approach there.

David Terry: Yeah I mean for Gold Arrow. For instance, Brian McEwen, the VP of Exploration, on Golden Arrow is focused entirely on Golden Arrow. Joe Grasso is the CEO of Golden Arrow. He’s not the CEO of any other companies, and he sits on the board of several of the other companies in the Group.

Matthew Gordon: Okay so you’re saying the team on Golden Arrow is focused on the project, but the holding group as it were has a number of teams which work on individual basis.

David Terry: That’s right, yeah.

Matthew Gordon: And again so just on the whole Argentinean, Chile, South American component of this. It has been a difficult place to work. It can be a difficult place to work. So what are the components that you look out for? Your job is risk mitigation so who manages that process in country?

David Terry: Well we’ve got several people that work on that in country and we like… in Argentina for example, we work with the government of the day and obviously some may be easier to work with than others. Argentina itself is regulated into the mining industry provincially like Canada is. So you’re you’re often dealing with provincial governments and then also federal oversight and relationships that have to be built there as well. But that’s an ongoing process and I think we’ve worked very hard at establishing good relationships with all levels of stakeholders and governments in the areas that we work in and we put a lot of effort into that. And I think we’ve been quite successful in terms of working in Argentina. If you’re in the good mining jurisdiction, like good province for mining, then it’s actually a great place to work.

Matthew Gordon: That begs the question are you going to get province?

David Terry: Yeah well Jujuy is the province where put operations is in and I think our record there speaks for itself. We discovered the Chinchillas Silver Lead Zinc deposit in 2012, and started drilling it off and put out 2 Resource estimates, 2 PEA’s on the backs of those Resource estimates and then entered into a JV and then maybe I’m getting ahead of myself here, with us.

Matthew Gordon: Well. Let’s go into that because there’s two components your business.

David Terry: You know we made a decision to construct the mine Chinchillas in March of 2017 and and by the end of 2017, early 2018, we had a permit to construct a large open pit mine. And there’s not many places in the world where you could get a permit in that sort of time. We didn’t have to permit a new tailings facility or processing plant. We’re just building the mine site.

Matthew Gordon: By any standard that’s impressive. But tell us about that relationship with SSR. You’ve got a 25% stake. What does that mean? 25% of what? The equity but what else does that give you?

David Terry: It’s a participating interest, 25%, participating interest in Puna Zinc which is a holding company which owns 100% of the Chinchillas Silver Lead Zinc deposit that came for Gold Arrow that we discovered. And the Pirquitas mine/ mill complex in remaining mineral resources that Pirquitas. So it really combines the assets, formerly held by the two individual companies, into one entity and we own it 25% interest in it and SSR owns 25%.

Matthew Gordon: So what what stage is that?

David Terry: They are the operator. They’re the operator obviously they own 75%. They announced that the project had reached commercial production in December the 1st of 2018. And so we’re in really the first quarter, and approaching the end of the first quarter of commercial production on Chinchillas.

Matthew Gordon: Right. And what what could that mean for your organisation? Obviously commercial production means cash flowing, but in terms of… I don’t know what is the debt situation there? When is there going to be free cash flow? When do you actually get to see the upside?

David Terry: Well all of these are all very questions, and obviously, I can’t answer all of them right now. The situation… we owe… we’ve built up some debt with SSR that helped us fulfil our portion of the capital expenditures. Some of that came from cash that we had on hand and some of that came from earnings out of processing stockpile material, that the operation is doing ever since we formed a joint venture. So the commercial production was started in December. We’re into the first quarter right now of production. We’re trucking upwards of 3,600, 3,700, 3,800 tons per day between Chinchillas and Pirquitas. The forecast for 2019 is 6Moz-7Moz of Silver, in addition to Silver & Lead production, And the forecast cash cost of that production is $8-$10 per oz of Silver. And so in terms of answering your question, is when will we see the cash flow, well we’re going to see what we get what the books look at the end of the first quarter here and then go from there.

Matthew Gordon: I guess the plan like like all things like this he want to build out the Resource and make this a sizeable operation.

David Terry: It is a sizeable operation. I mean producing more than 8Moz  ounces of Silver equivalent on an annual basis, is a significant size Silver mine. It is one of the top producers.

Matthew Gordon: You always want more don’t you?

David Terry: And the Reserve is quite a significant Reserve, of more than 80Moz ounces of Silver equivalent. In addition to the Reserve, there is significant mineral resources which are not currently in the mineral Reserve. Some of those could potentially be added to the Reserve in the future, depending on metal prices or potentially further drilling and that sort of thing. And there’s other options for for expanding things in the future as well. In terms, of there’s already existing mineral Resources, higher grade mineral resources at for Pirquitas.  Underground Resources that the joint ventures evaluating, potentially bringing on stream at some point to supplement or from Pirquitas. We’re ramping, we’ve ramped up to 4,000 tonne of day sort of benchmark from trucking ore from Chinchillas / Pirquitas which is a distance of 45km by road. There’s excess capacity already in the mill. So that can be brought up to 5,000 tonnes a day.

Matthew Gordon: What does all this mean? David what does it what does all this mean for your investors? What’s the plan for it? Are you looking to run it for cash or are you looking to sell it? I mean how do you assure shareholders benefit?

David Terry: Well I mean obviously, if We decide to transact at some point in the future then you know that they’ll benefit from that in terms of having a company with a large amount of capital, whatever that is. But going forward in terms of our participating interest, the mine plan obviously calls for more production of 8Moz ounces of Silver on an annual basis, and depending on what the Silver price is, that could be a significant revenue generator. And if the Silver price performs well and and everything comes in on budget and on plan as it has so far with with Puna s operations then there’ll be some cash flow coming.

Matthew Gordon: And and do SSR have an option to take you out at some point, if certain hurdles are reached? What’s the relationship?

David Terry: Right now it’s just a participating interest. I mean obviously…

Matthew Gordon: There’s nothing built in?

David Terry: There’s no prearranged route for them to do that.

Matthew Gordon: What I’m hearing is you’re going to assess this as you go along and…

David Terry: We’re really just getting going on it.

Matthew Gordon: Right. Needed to deal with that because I needed to understand how that fits in with what I think you’re more excited about I guess is the exploration potential. You wanna tell us a little bit about that.

David Terry: Golden arrow has obviously been an exploration company up until recently, through most of its life exclusively, and we’ve assembled quite a large portfolio of five potential projects in Argentina, over the timeframe we’ve been in existence. And some of those are located next to large projects in some of the prime mineral belts in Argentina. But once we made that transition, with Puna operations and formed the joint venture and they became the operator, we started looking a bit further afield for opportunities to take advantage, I guess of the situation in the mining industry in general right now. With companies having a challenge raising money and access to capital and so forth. And so we acquired two options on two advanced stage projects in Chile that are in the same area North of Copiapó. Both have what would be all historic mineral Resources on them right now and we think that there’s good avenues on both of those to add significant value.

Matthew Gordon: Okay. So I mean I mean tell us a bit about those properties what what are you expecting them to be? Obviously you’ve got a team exploration team there and that’s their expertise. What do you what are you buying into? And what are you hoping to create with them?

David Terry: Well I’ll start off with Indiana. It’s a Gold Copper vein system, north of Copiapó. It’s got a whole array of Gold Copper veins with two primary orientations. It’s between two strands of the Atacama fault and had some work on in the past, some artisanal type mining. And a fair bit of exploration, fairly recent done by the group that we acquired the property from. And they’ve completed drilling, surface sampling, mapping, trenching and so forth. And had a Resource estimate completed on the property it was done 43-101 standards but historical resource. But it totals 600,000 ounces of Gold equivalent. With a little bit more value in that equipment equivalency calculation coming from Gold and Copper but more or less similar values. And that’s just really on one small part of the of the vein system. So we think that there’s potential for expansion of that, and we have to do a bit of work to confirm it. And bring it up to what we would consider to put out a Resource estimate. The property is also permitted for production. It has two ramps, which access the key parts of the vein system underground. And so it has the potential for some relatively near-term production and that this area has a lot of mining infrastructure in Copiapo., And there’s processing plants, and that sort of thing within easy driving distance. So we’re we’re really at the point right now where we’re putting together the information on it, into a 3D model. Of planning out how we would approach the exploration on it, and also evaluating potential for relatively near-term production.

Matthew Gordon: So I mean you’ve got to be really confident in that. You know, I’m looking at the terms here. $100,000 on payment on signing, $15M over the next four years and prior to the payment of the last $7M and MSA he’s got the option of retaining 25% of the project on a pro-rata basis. You’ve got to be fairly confident walking into a project like this to commit to $15M before knowing really what you’ve got. So is that the case? What’s lengthy this this confidence?

David Terry: Well we’ve done quite a bit of due diligence on it. Obviously we’ve got a great technical team down there working on it.  And house here and and you’re right it’s not a expensive property, and so this is a property that will have to be moved forward and in a rapid manner, in order to to justify…

Matthew Gordon: Where’s the where’s the money coming from?

David Terry: Where’s the money coming from? Well we’ve just raise some money.

Matthew Gordon: How much have as you’ve just raised?

David Terry: We’ve just raised the $4.7M.

Matthew Gordon: So just understanding it. So $15M over the next 48 months. How does that break down? Is that a quarterly or on your payment? How long basically does your $4.7M last.

David Terry: We’re just working on our budgets right now. So you know all the different pockets where there has to go. But yeah I mean we will… We’re working on the alternatives to fund this going forward. And they are annual payments.

Matthew Gordon: And their annual payments. Okay. So spread equitably presumably?

David Terry:  Well they’re back backloaded.

Matthew Gordon: OK. That’s Indiana. So that’s your best target. And then you’ve got Alantida as well?

David Terry: Yeah. Which is 35km 40km to the East of Indiana. It’s a bit of a different type of project. It’s larger in surface area. It contains a very large, relatively low-grade Copper Gold porphyry deposit that was discovered by InMet and drilled by InMet and further worked on by First Quantum. After the takeover of InMet. But the historical Resource, and again this is historical, not a 43-101 compliant Resource but it was completed by those large companies. Total 427Mt of 0.43% Copper Equivalent.

Matthew Gordon: So that’s a very different project?

David Terry: A different project but we acquired this basically because on the periphery of this large deposit which is which is fairly deep where it is there’s some near surface Gold copper scarring mineralization. And the eastern body of Scotland mineralization has got some drilling in it but the western one was actually not part of this property when in that first quantum where we’re working on it and we basically what we really sort of added to the picture here is we’ve consolidated land owned by three different parties and turn it in Kinross was one of those. And so we’ve consolidated this larger land position that incorporates the Gold upper rich garden area to the west which is exposed it surface has quite a large lateral extent and has had no really modern exploration that we’re aware of. There’s some historical workings in that sort of thing on it and And so that’s our initial focus on this property is this area that we can basically surface and and the graves that we’ve gotten from our due diligence sampling in that area shows that there’s quite widespread upper escarpment right.

Matthew Gordon: Okay. So you’ve got a bit of work to do there and it’s relatively early stage so it can. But just looking at the terms that you’re committing to another $6M over the next four years says twenty one billion bucks in both of those projects is the recent raise going to pay for the development of this asset as well. In terms of moving it to the next stage.

David Terry: Well initially it’ll start to help us with that but again and we’ve got to you know obviously bring in other capital to really advance this forward as we want to.

Matthew Gordon: Right. And what’s the timing on this with this taking a slight backseat or is this in terms that you’re waiting you’re…

David Terry: No we’re working you know sort of right now in our planning stages really on both there they’re very very close and we actually operate them out of the same camp.

Matthew Gordon: Okay. Yeah it’s quite close.

David Terry: Yeah. we’ve got the same team that can deploy to either one.

Matthew Gordon: In terms of your business plan per say for for driving this forward. You guys are still working on your budget. That’s what I’m hearing and you will work out how you apportion your time, well time is money, and money across the projects to advance things. Yeah.

David Terry: Yeah.

Matthew Gordon: That’s the idea. Okay great. You’ve also got another project Antofalla in Argentina. Is that is that something that’s on the ‘To Do list’ or is that just an option?

David Terry: It’s an option and again we, I guess that’s the only other option that we have right now. The other projects that we have are all owned 100%. And that’s the thing with Argentina, is the actual cost for keeping properties current, in terms of the fees or however you want to call it, is relatively low comparable to other jurisdictions.

Matthew Gordon: But there is an expectation from them that you will get on and start drilling, and start spending money, developing these things out?

David Terry: Basically the way it works there, is when you acquire these initial packages of land, you have to either have to downsize them over time, and continually work on them.

Matthew Gordon: Okay well maybe maybe that’s something which you can, that project Antofallo. You can tell us a little bit about you know as things progress.

David Terry: Well we acquired Antofalla, because it had geological similarities to Chinchillas. You know, it’s a dome complex of these young intrusive volcanic complexes coming up through through older sedimentary rocks. And and we just we saw a strong similarity there and so we’ve done a little bit of initial drilling. And we’re just deciding if we’re gonna continue on with that or or go some other route with that project.

Matthew Gordon: Yeah. So just just to help the our investors understand the process. Because exploration it’s high-risk, high-return but you’ve got to lift up a lot of rocks to find what you want? So what has attracted you to this area what are you looking to achieve? You’ve optioned, sorry you’ve more than optioned,  you’ve got 3 projects, 4 include producing Silver at Puna. What are you hoping to achieve? And what’s the process you’re engaged with to do that?

David Terry: Well our our goal is to find new deposits and make discoveries which are gonna be attractive to people who want to develop mines. And like larger mining companies. And you know we’ve done that with our deal with SSR. And with the projects that we’ve entered into agreements on, and obviously their options, and if we get a bit further down the road on number one of these, or any one of these, and they don’t meet up to our expectations, then we will we’ll move on. I mean that’s something that I feel quite strongly about, is you know you can’t get married to a project. You have to continually assess it on its merits. And so you know what I look for on a project is something that’s got significant size and it’s something that could be developed in the lower quartile of costs, for or for that category of deposits. Because if you’ve got something that’s relatively low-cost compared to other comparable projects or mines and then you’re gonna be able to weather through the ups and downs of the commodity cycle.

Matthew Gordon: And what is the indication? I mean you’ve said there’s a lot of other mines in the area. I mean what sort of quartile performance, cost curve performance, are they operating in the lowest somewhere in the middle.

David Terry: I think it’s all over the place. And when I said other mines, I mean you’re talking about an area Copiapo in Chile, there’s a lot of those that are advanced exploration projects.

Matthew Gordon: Understood but obviously, underground mining a a bit more expensive open pit. So it’s you know the economics are important to understand and as you say don’t get wedded to a project if it’s not going to work out. So I got it. But the other thing that you guys have to do is find the money to be able to do all of this, presumably to take it to a stage where you, either can go and raise more money, or you do an SSR type deal, where you bring in a partner right. So is that all part of your thinking?

David Terry: Yeah I mean obviously where we’re continually working on  financing the company, as most people in this business are, but you’ve always got to be open to all the alternatives, like whether it’s forming a joint venture or doing a corporate transaction, or a project transaction. Obviously all those things are always on the table for the right terms and the right situation.

Matthew Gordon: I guess again, I just I keep coming back to what investors need to understand about exploration mining. It’s can expensive and unrewarding, but it can also be extremely rewarding if you get it right. And I guess that’s what people are looking for.

David Terry: Part of the philosophy behind going and firing these option deals, and they are option deals that start off with the lower payments and escalate over time. So as I said before they’ve gotta live up to our expectations as we go forward and that’s you know all those deals are usually structured that way, so you have time to get your feet wet and do the work that you want to do to test out your theories, and see if you have the projects hold up. But you know both of those projects have have a lot of mineralization on them, and widespread mineralization, and both of them have the potential for further discoveries, right on those properties. And as you know the best places to find new deposits and larger deposits is on properties that have had work demonstrate that there’s already significant mineralization.

Matthew Gordon: Right. Okay. So some easy questions for you now. 2019. What are the targets that you’ve set yourself? And how are you going to achieve those?

David Terry: Well I mean certainly we hope to see Puna performing as planned, and continuing on with sort of at least 4,000 tonnes a day being trucked between Chinchillas and Picitas mill. And produce a 6-6Moz of Silver. And so we’re hoping that that gets achieved obviously. That’s going to be very important to us. And and then moving forward on these other projects and starting to execute the plan and carry out the the work that’s needed to assess them. And we’re continually working at that and looking at all of our portfolio and the opportunities that are within it, and how to how to best manage that for the benefit of shareholders. The company is controls a lot of the shares, and so we’re certainly aligned with the interests of shareholders.

Matthew Gordon: How many shares to the management and board own?

David Terry: Well between insiders, friends and extended group, it’s close to 50%. I’m not sure exactly what the number is but it’s very large.

Matthew Gordon: Okay maybe a tough one for you. What do you think the five reasons that investors should be looking at Golden Arrow Resources?

David Terry: Five reasons. OK.

Matthew Gordon: Any order you like.

David Terry: Well I think you know experts in exploration in Argentina. And got a great team of people that have mentioned this at the beginning but the Grasso Group of Companies has found 4 significant deposits over the last twenty five years. And there’s not many other group groups that can have that sort of a track record. There is a lot of experience there. We certainly have a good ability to finance the company, and we’ve always been able to do that. How many am I up to now?

Matthew Gordon: Three.

David Terry: We’ve got a great portfolio of projects that we’ve put together. You know we’re always looking for partners to help us come in and help help advance them. And you know we feel that we’re undervalued in the market right now. So I thin…

Matthew Gordon: You and everyone else I’m afraid.

David Terry: And we’ve leveraged the price of Silver as well.

Matthew Gordon: True, it looks like a good year for Silver and Gold. Well and copper. David thanks very much for your time. I appreciate you giving us that insight into the company. It’s the first time we’ve actually spoken with Golden Arrow. So I appreciate that and we will look forward to getting an update with you in a few months time.

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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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Sabina Gold (TSX: SBB) – Shovel Ready, NPV $760M, with $50M Cash In-Hand, 24-30% IRR (Transcript)

We interviewed Bruce McLeod, CEO of Sabina Gold & Silver to discuss their activities of 2018 and what their plans are for 2019. They are showing some robust economics with a district wide project. Their initial resource is 7.2Moz @6g/t. With $50M in cash in the bank and their permits, see what Bruce has to say.

Click here to watch the interview.

Matthew Gordon: Good morning Bruce. How are you?

Bruce McLeod: I’m very well thank you.

Matthew Gordon: Fantastic, thanks for joining us. I know it’s early. So Bruce, we’ve heard your story before but we wanted to kind of get into a little bit of detail about some of the players on your team. Maybe I’m a little bit more about you so can you tell us about yourself, where you come from, your background, your relevant experience?

Bruce McLeod: I’m third generation in the mining business. I grew up in the business. My father was a was a successful developer. And before that my grandfather, a miner, and felt that there was actually.. it was more lucrative to sell beer to miners than it wants to be a miner. So we’ll call two and a half generations. Mining engineer have worked on three continents. And a number of very successful mines, including building them in to a mine, North of 60, in the Yukon, permafrost, 40 below. Logistically challenged. So a lot of relevant experience to a project like Sabina’s. But I think what really helps us Sabina and probably gives us even far more knowledge base than we did with Minto and Sherwood, is I’ve got a board that has significant experience too. My chairman is Walter Segsworth. Walter was the chairman of Cumberland, which is now Agnico’s Meadowbank Mine. And before that was the CEO of Westmin and the CEO Homestate, which ran the largest banded iron formation in the world, with the Lead Mine in the Dakotas. With that we also have a new addition which is Rick House. He’s the CEO of Dundee Precious Metals, which is a 10% shareholder of ours. He worked at Polaris which is the most Northern Canadian mine ever, for a number of years as the senior management. It makes Sabina in Southwestern Nunavut actually look logistically simple. And a lot of it because that was a base metal mine that also had to deal with shipping out concentrates, where we airfreight our bullion. On top of that significant financial permitting operating experience and corporate governance. So I think really, we’ve developed a team that we believe is best in class for a projects such as ours.

Matthew Gordon: Right I know and some of the pieces that you’ve done in the press, you talk about do you risking the project, perhaps of something we can come onto and a little bit more detail in a moment, but first I want to ask you, how do you think you did in 2018. If we were doing a report card, what would you say?

Bruce MacLeod: We knocked it out of the park in 2018 for everything except for the most important one, and that’s equity price. If we look at the objectives that we had. 1. It was our permanent we got both our Taipei and our type B water license so we’re now fully licensed and permitted to to the next level. 2. After that was our deal with that could take me out Inuit Association and that was a 20yr term deal that we completed. So that now gives a social licence to move the project forward. 3. Also did a great job of building up the infrastructure logistics, which is one of the challenges on this project. Built are our port facilities replayed our facility on time and on budget. 4. We now have the potential to continue to grow this already large high-grade Resource. But we’re also in a challenging equity market and we underperformed compared to our peers. So even though that we did I think a very good job in our deliverables from an equity shareholder perspective. I think that’s what we have to do better.

Matthew Gordon: So what do you think went wrong? When you say in relation to your peers. What were they doing that you weren’t?

Bruce MacLeod: Well I think what many of them were doing that we weren’t, is some of our peers were already fully financed. We weren’t. And I think you don’t get a weak equity market. People are fearful that you’re going to hit the equity market at the wrong time and an opportune time hitting the market with a very significant financing for production, probably cause people fear that you know there was significant dilution coming, in a market that quite frankly wouldn’t be able to absorb it or finance it. I think that’s probably the first and foremost thing. And look we did a deal with the Joajin in December, closed it in January 18. And Joajin brought significant dollars almost $70M for 9.9% to the company, giving us.. doing it a very significant premium. And I think what the market sensed, is even though the market was weak that we were going to go ahead. And I don’t think anything could be further from the truth, in that, we are very cognisant of the capital structure of the company. That doesn’t mean that we won’t continue to do small financings to add value. But I think we feel that we need the timing to be better, for us to move the project into that ultimate phase. But that does risking phase that we have to do what I think will save us dilution, because what it will do is reduce our cost of capital on this project.

Matthew Gordon: Right. I think we’ll come back to this again and in a moment. But I think the other thing is noticeable is your getting out into the market more than you did last year. You know we’ve seen you in several interviews. Would you say that’s a fair comment?

Bruce McLeod: I wouldn’t say we’ve done it more. I think maybe we’re probably a higher profile company than we were a year ago now. Now permitted first world jurisdiction. Very few empirical, very few companies that actually have been through this long process of Canada, U.S., first world.. that can say that we’re shovel ready. So I think what happened is we probably have more eyes on us because we’re in a very small group of peers.

Matthew Gordon: Okay. So just to finish off on the 2018 report. Is there anything that you would have done differently. You say you’ve knocked it out of the park. But looking back what would you have done differently.

Bruce McLeod: You know I don’t think there’s anything that we could have done differently. You know.. the not taking a significant equity contribution would put us in a position that we’d probably have to do it in a weaker market later in the year. I think that focusing on expiration still is something that we feel is important. It’s one of the few things that you can actually look at our equity performance and when we deliver exploration results, see that there’s a response. That’s positive.

Matthew Gordon: Okay. So let’s look forward for a minute. You’ve got some pretty impressive shareholders, Dundee precious metals and also Joajin. What are they asking of you for 2019, 2020. What are you asking of yourselves?

Bruce McLeod: Well I think we again are in a market right now that people are  fearful of doing a large equity offering to advance the project construction and production. One of the things about working in the area that we are is, is there is more inherent risk. But we also have more inherent reward because of the size of our Resources the grade of our Resources. Remember these are the highest-grade undeveloped open pits in the world. If we look at other peers and Nunavit, we’re up to double the grade of a very successful mines and in today’s today’s times. But the risk and when it comes to logistics and infrastructure risk, and perceived capital risk to the projects, those are things that when we’re looking at financiers, we’re looking at debt packages, we’re looking at equity offerings, is people are afraid that the infrastructure and logistics will cost more to overcome. And they’re fearful that our capital costs will be significantly higher than we estimated.

Matthew Gordon: But that’s your role as CEO. Know you’re managing risk every day. So if we look at some of the things that you’ve been doing and you’re going to be doing this year, I mean what can you tell us a little bit more about that, over and above the capital risk component.

Bruce McLeod: Well the capital risk component is a big part of it. So I’ll touch on that is that what we have done with our Feasibility Study is brought it beyond that and basic engineering and well done detailed engineering. So getting you know rather than an estimate which is a Feasibility, even a Bankable Feasibility is still an estimate. It is getting supplier quotes, getting them refreshed, but instead of the method of delivery, which was EPCM, which is timing materials, cost plus, is we are going down the path of an EPC or fixed price bid for the physical. The engineering construction firm that say look we will actually build this to the specification, and with performance guarantee which gives our shareholders more risk to operational readiness. And we can put some more firm square brackets on those cost numbers. The second part is the logistics infrastructure is, although we’ve built the port facility, we have operated other than a toll road. A cat train between the mine and the port facility, we’re in the late stages of building that winter ice road between those two, and showing how we can operate that in the long-term through construction and operation.

Matthew Gordon: I’ve seen a piece that you did recently where you’re talking about looking at debt financing v equity and obviously you think the equity that is a bit rich at the moment. So you’re putting out the first pour to 2022, I think is the thing is what you said. So you’ve obviously run the economics on that and said that it just doesn’t make sense. Are you going to continually monitor that situation between now and then or is that that’s the date set in stone.

Bruce McLeod: You know because of the seasonality of shipping to the North, winter ice roads, it’s binary. You know we’re now at the stage that even if we had all the money sitting in a bank account, ready to go, we could not do Q421, without adding significantly more risk of trying to compress that schedule. So we have to deal with the seasonality and it was a decision that we looked at. We didn’t take lightly. With that being said, is the vast majority of our shareholders were relieved that we pushed those rather than trying to force the equity issue and in a market that frankly isn’t being supported.

Matthew Gordon: That’s understood. So like a couple of easy questions for you here. Give me five reasons why investors new investors and should be investing into Sabina.

Bruce McLeod: Well the first is its a world class goal project with extremely robust economics. Our feasibility was completed in $1,150 Gold versus today, high $1,200’s – low for $1,300. And and we’re much more favourable Canadian to US Dollar than our Feasibility. And at $1,150 that have an after tax IRR of over 24% at today’s spot Gold / spot exchange that’s well over 30%, manageable pre-production capital, high annual production. But it’s also a district we’ve been working on 8km of this 80km belt. We have another 2Moz, a million of that in Inferred, sitting 50km away at the George project. We haven’t set foot on that since I’ve been with this company. So we have that low risk conversion opportunities, blue sky, greenfield and brownfield opportunities. It’s also a significantly de-risked project in the first world, is that we are now fully permitted. We have some licenses to complete, but those aren’t part of a public review process. Those are show the engineering design and how you can meet the standards and you will receive. And we’ve got a company with Executive on a board that have a track record of success. So I think I might be more than 5 but I think that is really the rationale behind being a shareholder..

Matthew Gordon: So I’m just gonna ask you a few questions which are circulating the market and perhaps something that you want to address as well. So let’s start off with the project itself. Obviously you’ve got a district, it’s not an asset, as I as a district. So talk us through some the numbers. Your market caps around sort of $390M today, as we as we talk. How much did you pay for these assets and what did you inherit?

Bruce McLeod: It was $7M in cash and the 17 million shares of Sabina at the time that we paid to acquire these. And at the time, it was a 2Moz Resources. A lot of that Inferred. No current economic analysis. And frankly just too small a Resources to move forward given the cost to overcome logistics infrastructure. And so we spent significant dollars, and that would be close to $300M on on advancing this project. Today we have over 500,000m of core drilled into the Back River district. So what we have ended up with is 5.2Moz in Measured and Indicated, another 2Moz of Inferred at over 6g/t. So you know high-grade. All of these deposits are still open. And what we have shown in the last three years, since we’ve done our last Resources update, that we’ve made the three new discoveries that are outside of our current economics analysis.

Matthew Gordon: Right. So in terms of dollars spent do feel that you’ve got the value today is a reflection of the time, the value, the numbers that you’ve created?

Bruce McLeod: No. Today you have permitted developers like us trading at historic lows. Is and again we’re not alone. But trading at this point four times NAV and you can’t recreate this kind of value without risk. So if we look at a grassroots project that is going to be typical, in building up the Resources building up your understanding of the economics of the project, going through the permitting. To recreate that today it would cost significantly more than what we have put into the ground and Back River. So you know I think today, we’re trading at a discount with many of our peers and it’s this developer group that I think offers some of the best opportunities in the marketplace, because the exploration risk is behind, the permitting risk is behind, the Feasibility risk is behind and now it’s execution and delivery risk, which again is used to manage that exploration risk by a big margin.

Matthew Gordon: Right but as a public company, you are measured by one number at that’s the share price. You had peaks last year of $1.82. You’re down at $1.32 / $1.35. You’ve had a bit of a knock there but what would you say to new investors looking at Sabina now?

Bruce McLeod: It’s a far better company than it was when we were trading at a 52 week high. It’s not a Gold price environment. It’s an investor sentiment environment. You know today again, why did we use the $1,150 for a Feasibility because we could to show the economics of the project work. And the sensitivities in that study so you can look at the economics in today’s price to have a project that doesn’t need a higher commodity price, doesn’t need a better exchange, foreign exchange ratio, and to have these important catalysts are behind us, but also having the catalysts in front of us. I think it’s just a far better company than it was when it was trading at 50% higher than it is today.

Matthew Gordon: Well obviously, you’ve done a lot in terms of permitting and drilling. You’ve got data. You’ve got a lot of de-risked factors. I get that. But what what are the things that you think are going to happen this year, which is going to give the stock a bump? So that’s what investors are looking for. You know there’s lots of choice out there. So what are you gonna do?

Bruce McLeod: Well the first is try and derisk the project to the point that we have as much confidence as we can have a capital costs, and logistics and infrastructure. But the other part of it which is very important is continue exploration. We’ve made a very important discovery hole was almost 12g/t of just under 40m. That’s a once in a lifetime for many people in the Gold business and haven’t followed up on it and chased it not only up dip down deep. We’re going to continue on on following that zone up and get to the point that for a follow up summer program that so we can put together a Resource, and use that as a as a leap frog into additional economics on this project.

Matthew Gordon: That cost money. It takes time and time’s money. So how much cash have you got today and where’s that taking through to?

Bruce McLeod: Well we started this year with CAD$50M. We will end the year without any additional financings in that neighbourhood of $10M to $20M. What we’ve done is our budget is we’ve actually put in some civil works and some optional programs that we may or may not do it. And it really is going to depend on on investor sentiment and whether we think that we have line of sight on that larger financing. And again it’s going to be based on investor sentiment. There’s no use advancing some of those construction activities unless we see there’s an appetite for actually paying for those in the marketplace.

Matthew Gordon: Okay. Okay. So you’ve got enough cash to get you through to where you need be. And I’m guessing a lot of that money is going in the ground. Not a lot a lot of overhead in your business. I mean the burn rate is…

Bruce McLeod: Our burn rate is relatively low. If you know we do have payments now that we have our agreement with a particular Inuit association that are not insignificant, but again with our capital structure aren’t are certainly going to break the bank. But the vast majority of our dollars have always gone into the ground. We try and maintain a period in operation otherwise.

Matthew Gordon: Let’s look at some of the shareholders here. Obviously you’ve got a lot of Chinese group sitting on just I think just under 10% . What’s the plan in terms of working with them or for the business.

Bruce McLeod: Joajin is the China’s fifth largest Gold producer. They actually found us. And that was a deal that took 23mths from first introduction until closing. And what we liked about their philosophy is they take long term approach. They recognised the district potential Back River. They believe that this isn’t a 2Moz initial project that this is a much larger multi-generational asset. And they liked management. They liked our ability to work in the environment that we’ve decided to focus on. And they felt that long term they could derive good value for their actual shareholders, by making an investment in Sabina. And providing some additional assistance to us, is they’re very good underground miners. They have a deposit that they’re developing that has some very close similarities to Back River. So not only do we get financial assistance, but also some technical assistance and with a big brother.

Matthew Gordon: But what does that say to the marketplace? Are saying that you’re in bed with Joajin now, and that’s going to limit your ability to sell elsewhere. Because I know you did… you were quite careful about the wording of that agreement. They have the ability to take more, but you know you’ve got to optimise for shareholders.

Bruce McLeod: So they own 9.9% which is certainly not a blocking interest. They have the to go 19.9% which people start worrying about is that a blocking interest. But we also received a 4yr standstill on a 4yr building trust where they couldn’t make a bid for the company, and more importantly with the building trust, if somebody else makes a bid for the company, they cannot vote, simply vote no. They have to either vote with management or provide a superior proposal. They cannot just block. So if people are worried about not getting the best value. You know I think that agreement actually puts in writing the mechanism that we will achieve best value for shareholders. If that M&A was to happen. Now the reality is is I don’t think anybody wants to see a transaction at the bottom of the market, particularly with some of the objectives that we have for delivery in the next two years.

Matthew Gordon: Yeah I mean you’re sitting on a global reserve of about 7.2Moz at the moment. High-grades over 6g/t. You’ve, obviously with the open pit is looking good, the strip ratios are not bad. Metallurgical risk seems reasonable. How big do you need to get before you start looking at offers or people start making offers? I mean this is already a big, big project.

Bruce McLeod: It’s not big. It’s valuation. At what valuation would you be at? At the end of the day is, look if you look at my track record I have no problem building and operating. I also have no problem. selling at the right time. It’s how to maximise value. And I think it’s human nature that people would rather.. whether it be a shareholder taking risk with us moving it forward, or our management team taking risks and moving it forward. I think it’s human nature that would you rather do a lot of work for more, or a lot less work for slightly less. Timing is everything in this business. And we have essentially seen capital a lack of reinvestment in the sector. And although in 2015, 2016, we saw a bit of a about an upwards blips. We’re still in a poor precious metal equity environment. I don’t think that it would serve any of our shareholders, particularly long standing ones that have been with this company for a decade as we backs this project too, for us to try to move a sale process at the bottom of the market. So you know what we are able to do and again the reason that we have the management team the board the executive, the employees, is we that we’ve developed a team that to maximise value and build this and operate this. But it doesn’t mean we’re going to be close minded. At the right time, at the right valuation, to an alternative transaction.

Matthew Gordon: OK you’ve got the right team there, but the is markets the market, so let’s move forward. End of 2019, beginning in 2020. You spent your money, share prices the same, what do you do?

Bruce McLeod: Well again, where we do have a benefit is to having large strategic shareholders that have a long time horizon. It enables us to move projects forward where others can’t. And we also are an environment that there are so few assets that are at this stage, that it is certainly far easier for us to raise capital than many of those grassroots, early stage projects. And especially with a larger market cap of where we are, of $300M to try and move it to go forward with $20M to $30M a year until the timing is right this is not something that would be the worst thing, rather than again trying to effect a sale process at the bottom, because the lack of financial capability that’s your only option.

Matthew Gordon: Okay. So let’s look at some of the basic numbers here. Your NPV looks okay. Your IRR is Okay. I mean what are there other numbers that people should be focused on in terms of understanding what the opportunity here is with Sabina?

Bruce McLeod: I would say they’re better than okay. If we again look at the headline numbers our feasibility, which a lot of people especially, a lot of retail investors look at that and don’t take a look at the sensitivity. So even though at $1,150 Gold with an $0.80, it’s at 24.2% after tax IRR, at today is spot on spot, it is over 30%. And if we look at the NPV, it’s over $760M, I believe. So I would I would say it’s very good, particularly in relation for market cap. You know you have to look at least at those in current prices. So that alone is looking at a developer that in a normalised market will trade off 0.75 NAV, there’s a rerating alone without us doing anything, waiting for the marketplace. But with that being said you want to be able first mover advantage. You want to be able to take the most attractive equity offerings, you have to be able to move this project forward at the right time. It’s being ready when that market does change to be able to take a bet.

Matthew Gordon: Okay. So again looking looking at the market. I think the general consensus is it’s picking up not, particularly fast but it’s picking up, and it may continue. If it doesn’t obviously the short the short term upside here is restricted somewhat. I think long term, I think you’ve argued a pretty good case that there’s a lot of upside in the long term. What could you do to affect any of this short-term upside that new investors might be looking for. Is there M&A on the horizon? I know you’re a district wide asset, but is that a consideration.

Bruce McLeod: Look it’s always a consideration. I don’t think at the end of the day we’re stewards of the company and the shareholders companies. If a compelling offer is made I think that we have to bring that to shareholders. But what I think we can do is even in difficult markets, remember we’ve been a company that has been able to, since 2011, move this project forward every single year. So we’ve been able to again get through a permitting process, both metallurgy and permitting, in this business tend to be… people give you full credit for it until you fail. So we’ve been through some of those higher-risk activities already. I think that the reality is if we get any cheaper, we probably won’t be around because somebody will take advantage of that. But continue moving it forward, continuing showing that as a management team, that we have better ideas on how to reduce capital, how to reduce risk, how to grow the Resources. But we don’t have that binary risk now of permitting, of putting a Resources together, getting a feasibility together. Again all of that behind us in a first world wonderful jurisdiction. The upside opportunity if we continue to see this this better interest in the Gold sector, I think is is a tremendous opportunity. And if we look at the macro factors today, I think for investing in Gold is probably never been better.

Matthew Gordon: Okay. So just it just kind of finish off here. You know you said earlier you haven’t performed as well as your peers for a variety of reasons. So new investors looking at you why Sabina? Why not your peers?

Bruce McLeod: Well look, a lot of its jurisdiction. If we take a look at some of our peers that are out there that are that are down the development path, they’re certainly not in jurisdictions that compare to Canada. You know everybody in this business whether it’s you’re investing a Sabina or any of our peers, has to take commodity price risk. But why take the country risk on top of that? Why take additional permitting risk? Why take additional risk on the n the technical factors behind it? A Resources size on growth. Because of our jurisdiction, and because of the economics of this project, I think really it is one of the better global development investments that you can at.

Matthew Gordon: Bruce, thanks very much for your time. I know you’re busy. Great to catch up with you and understand the Sabina story in a little bit more depth. It would be lovely if we can catch up in the next couple of months and so see how you’re getting on.

Bruce McLeod: Sure. Great.

Matthew Gordon: Appreciate your time. Thanks again.

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GoGold Resources (TSX: GGD) – Long Track Record of Making Money for Shareholder (Transcript)

We interviewed GoGold CEO Bradley Langille to get an introduction to the company. The team has a long track record of building and selling companies, which cannot be understated – they are company builders. They are at the bottom of the cycle but they have the cash and a strong balance sheet, as well as ramping up their production. Hear what he has to say.

Click here to watch the interview.

Matthew Gordon: Hello Brad, how are you?

Brad Langille: Good. Very good.

Matthew Gordon: Fantastic. Where are you speaking to us from?

Brad Langille: I am speaking to you from Halifax Nova Scotia, Canada.

Matthew Gordon: Well thanks for taking the time out to tell us your story. We’ve been through the PowerPoint so I guess maybe just kick off for people new to the story. Give us a two-minute elevator pitch.

Brad Langille: Well the group and myself and the companies I’ve led over the last 25 years have all been based in Mexico. Our success has been on the technical side and very, very competent team in Mexico. We’ve had a lot of success in discovery. In Mexico, we have a good network of…in the business community, the government, in the mining sector. We’ve typically found projects that are a bit off the radar. Usually private individuals have owned these. We’ve been able to bring the capital markets to the projects. We finance equity over the last 15 years for our projects about a $1Bn including some very large loans as well through banks such as the Bank of Montreal Scotiabank in the hundreds of millions of dollars. Where currently I built 4 mines myself in my career. And strong technical team, strong finance team that we’re able to get these things done. So we’re currently one mine operating in this company GoGold and we’ve just done an acquisition of exploration development project in Polisco, Mexico.

Matthew Gordon: I mean your presentation doesn’t make a lot of the fact that you guys are deal makers, in the sense that, you buy assets, you sweat them, you sell them and you you’ve got a good track record of making money.

Brad Langille: You know we have. And obviously we’re in a cyclical industry. I mean… it goes up and down in the cycle and right now we’re pretty much at the bottom of the cycle, I believe. It’s been a long winter in the Resource business but I think we’re going to come out of this in the next 18-24 months now. Reminds me an awful lot of the first project that we had which was the Ocampo project and a company called Gammon Lake. And that one was started at the bottom of the cycle as well. It was literally started in the grouch in 1997 in 1999 went into that project we acquired it from private family we paid $15M for it and at the top of the cycle were $2.2Bn market cap. We built two mines there that the eventually the mind was sold to Carlos Slim for $75M0. Also the mid in the cycle, we bought another project called the Accubo project. We bought that for $20M from private family. We invested $45M in a shell right out of the gate with the Bank of Montreal. That was Mex Gold. It was sold three years later for $375M. That asset the Accubo asset ended up in the Endeavour Silver and sold to them after about another seven years of production for $250M. So we’ve been able to bring capital which is obviously very important this business. It’s a very capital-intensive business. And you combine that with a country that’s mining friendly. Expertise in the development of assets. And yes, we’ve been able to turn tens of millions into hundreds of millions, sometimes billions.

Matthew Gordon: There are cycles, some commodities come in and out of fashion. Sometimes it’s easy to raise capital than other times. In this case, for your project today, how are you playing this? How are you going to create value?

Brad Langille: I think as a non-technical, generalist, family office, high net worth… if you want some exposure to the sector, what you should be doing is looking for management teams. This is a business that’s very capital intensive. I see companies that are either all promotion, especially in the good part of the cycle, and maybe lacking in the experience in the technical depth. Or the other extremists that I see companies that are very, very technical but can ever put together the capital. So I think, with our group, what we’ve been able to do is combine that technical knowhow. By education with geologist, but really, I’ve spent a lot of my career in the capital markets raising money. So I have very strong technical team which I can talk their language I can understand what they’re doing, but I’m also able to go on the street to you know London New York and raise the capital. So I think when you can combine those two you have a winning common combination. You know the the mining sector from from my opinion for an investor you should have some exposure. I mean really in the Gold business and it is very cyclic right now the generalist market is booming. Who knows how long that will last. But this is almost insurance. When you know we’re inverse to the general market when the general market typically is down. That’s when the investor run for Gold. That’s when we typically do well. Right. I like to say you know our timing is perfect if you’re there all the time eventually it’s perfect. And what I mean by that is that this is this is what we do. We you know I’m not bothered by a whole bunch other public companies. I only ever do one public company and mining sector at a time, typically. And and we’re very, very focused on Resource.

Matthew Gordon: There’s a few things in there obviously that you’ve covered off so you know people can look at commodities, they can look at Gold, and you can argue the case of what type of Gold investment you should have. Equities, physical, ETF etc. But coming back to you. And yes people can be contrarian and so forth in terms of their investment strategies. But for you coming back to your company what what do you how are you going to play this? I mean how are you moving the company forward? Because if I look at your share price, it’s obviously down, as is everyone’s to be fair but you know you want to sort of see some uplift there before you even contemplate raising money to do anything else. So what what’s your plan for this year?

Brad Langille: The plan for this year. First of all. Perfect company for me in this market is a company that can generate cash, and then where do you redeploy that cash. So really in this business the value is created in the Exploration Development. or a lot of the value, in that phase Exploration Development to Production to Construction Production. So here in the goal for us right now, is first of all was to have Parral working well which it’s doing now. And we just had the best quarter ever. As far as production we just really said we see the quarter that we’re in right now. We better than last quarter where we’re targeting a number that’s 500,000oz. So that would be substantially, for one quarter 500,000oz Silver equivalent ounces, would be substantially better than we’ve ever done at the mine in the past. That will generate enough money obviously to pay all the expenses in the company, and generate money to deploy into our new Exploration development capital project. That’s where the. That’s how we’re going to play it. We’re gonna have Perral where we have developed an expertise in retreating these old tailings. These old mine waste. It’s not what you call a sexy mining project but it’s a cash generating mining project. So what do you do with that cash? So that’s the next phase. That’s a parallel track. We do what we’ve done in the past. We find these off the radar projects like Ocampo in Gammon, which we turn into billions. Or like our latest Los Ripos which is Exploration Development and it’s going to be developed to a stage, we feel when the market starts coming back which I think we’ll be the next 18 24 months, our ducks in a row. We have a district here where we’re doing basically the same thing that we did Ocampo. There was an old high grade mine where they took out the heart but they left behind what they would have considered non-economic back then. But today in an open pit bulk mining scenario. And that’s what we’re going to drill off first. That is potentially 2g/t material which is bonanza for us in an open pit. So we’re drilling that off. And then we have this property which has tons of potential over 35km of structure, where we’re going to make new discovery. So production so we don’t have to dilute the stock. A lot of the other juniors right now in the Exploration Development business and that’s where the real value is created, have to go in print shares to get capital. We don’t have to do that as you mentioned we have a strong balance sheet and starting to generate cash and mine. Redeploy that cash into the part of the business from our experience over the last twenty five years. That really generates the equity growth.

Matthew Gordon: A couple questions there. You talk about the market. You think the market is coming back the next 18-24 months. You’re under no illusion about what 2019 is. A lot of people have a very bullish about the price of Gold this year because of the political geo-political turmoil. You’re taking a slightly longer more pragmatic approach to this? Is that right?

Brad Langille: I am you know I and what I know is building mines and finding Gold. I don’t claim to be an expert on when the next up cycle is. That being said we’ve raised a lot of money over the last 15-20 years and we know a lot of these institutions. And every time I’m in a meeting with one of these institutions I ask them what they think. As a investor, especially the the mining focused investors, and what I’m hearing from them is 18-24 months that they think we’ll be firmly into the next up cycle. So I don’t think anybody can predict for sure when it will be but for us we’re in a good position. We’re a strong balance sheet, we’re a strong technical team. We have the assets in place that where we want in this particular one we’ve been followed for several years. So we’ll get all our ducks in a row. We think from the response from the investment community, the focus mining investment community, it’s gonna be 18-24 months. But today we’re at a market cap of $40M and we have our ducks in a row as I mentioned so we’re ready to go. So we’ll be there ready when the market comes back and I think we can even in this market we can generate some real returns here over the next 6-12 months with what we’re doing.

Matthew Gordon: You think investors looking at you should be looking at this as a two year, three year timeline summer. I’m just looking at your PowerPoint. You talk about how long you have assets for. You work them up to a point where you’re maximising their potential and their value and then you exit. That you’re not looking to create a kind of cash flow machine for the next 10-20 years. You get in and out when the value is there.

Brad Langille: Yeah I think you have to look at our track record and what we’ve done. But it’s important when you have an asset that you technically develop well, you created real value where the premium major mining companies like EnicoEagle are willing to pay you tens of millions or hundreds of millions of dollars. To do that, you have to do the work. But I’ll tell you something if you put the for sale sign on an asset, you’re not going to get the best price. You have to as part of your track record that you have the ability to build the mines and that you will build the mines. That you can put together the hundreds of millions of dollars to build the big mines. And then you’ll find that people want to pay. So that has always been our strategy. And we can build the mines. Ocampo was at 250,000oz producer and it was a large pit with a large deep Leach and a large underground mine. So. But I feel that the real value created for the shareholder is in our Los Ricos this project from where it is today or the next 24 months. I just want to point this out in a down cycle. You take the Sandafortutos project. That the project had been sitting there for years, in a little junior, trading at a $1.5M market cap. So in 2014 first we did a lot of due diligence, but six months of due diligence, on the project. We were able to acquire. Once we jumped in there, we got a lot of competition from some other juniors but we got it for $9M. We spent another $11M. We’re in for $20M three years later. We sold it for $80M. We retain a relative 2%. We’ve realized $12M on that royalty, half cash half shares. Those shares have gone up by about 70%. So even in the bottom of the market, we generated some value for the company. What can we do the value? We paid off all our debt. Now we have a minus generating cash and it’s debt free with cash on our balance sheet. My point is even in this down market I believe over the next 6-12 months, we’re going to generate some real value for our shareholders in what we’re doing.

Matthew Gordon: There’s some triggers that are potentially for investors to look for. Obviously you don’t put the for sale sign up. You just don’t do that if you want to maximize the potential of the offer. What are what are the other little triggers that.. the things, the signs that people should look for?

Brad Langille: I think you know when a company has to go to the market again it’s tough to be into the market right now.

Matthew Gordon: So cash is king!

Brad Langille: Cash is king for just one other point. Just what I mean they’re both you know throwing up the For Sale sign. It doesn’t really matter. The roadmap to building a mine or the roadmap to selling an asset is the same roadmap. So we just go into a project and we say we do the right systematic work towards building the mine. And if somebody comes they come. So that’s that’s what we do in the asset side. But for us right now it’s all about cash is king. Strong balance sheet, strong strong technical team. A country that we know extremely well. And the ability to move things forward.

Matthew Gordon: So lots of optionality when you’ve got cash! And just asset a generic one. How do you think you did in 2018 and what would you’ve done differently?

Brad Langille: In 2018 what we’ve done differently? We would’ve had Los Ricos  sooner. But we couldn’t drill that. We it was it was a process and it took as long as it took. In 2018, you know the end of 2017 we we sold our our asset Fortudos. We made a lot of money on it. But I’ll tell you what at that point we had a lot of debt. So the ability to move that asset gave us a strong footing. I think that I would say that our producing mine of all the four mines, I believe was probably the toughest. We did something new there. And sometimes is overlooked. We created some really new technology. We took these old tailings, we did something that nobody’s ever done before. We heap leach these tailings. So we do have that as well. It’s not a sexy mining project but there’s hundreds of millions of tons of these in Mexico. And nobody’s done that before. And we’ve developed the knowhow around that. So never never say never. We may do one of those again and just to generate more cash.

Matthew Gordon: And do you have the ability, one to identify additional assets and then option them because of your connections and the fact you’ve been working there for 25 odd years and is that part of the strategy going forward? I know it’s not right now but is that what you’re thinking?

Brad Langille: You see what opportunities come to you. We do have a lot of projects that come to us. We look at an awful lot of projects. I would say that we’re a very focused team though and really the focus right now is that Los Rico’s project. Maybe there’ll be some more consolidation around it but the focus is that project and we’ll keep the team very focused on that. You know there is some people have mentioned that you look at you know our where we trade the market as far as market cap. You look at some similar companies, you say we’re all trading at a 0.3x NAV, net asset value, is there is there money to be made in M&A? I think there’s far less money to be made in M&A than there is in what we’re doing right now. If we built a lot of a lot more market cap in the rest of the market is still really depressed, you know we could revisit that. Obviously we’ve been long and we’ve said this publicly we looked at a lot of M&A opportunities. I just think there’s way more money created in the development of this Los Ricos project.

Matthew Gordon: Can I ask then say this year I think you’ve sort of explained what you’re going to be… the process of kind of going through this year and probably next as well, so five reasons people should get interested in and believe in your operation and look at potentially investing in you as well.

Brad Langille: A few reasons why they should it is because 1. Is cycle. So cycle, we’re at the bottom of the cycle. And so there are other companies obviously at bottom the cycle as well. So what differentiates us. We have cash. We have a strong balance sheet. The last thing you want to be doing is going to the market raising equity at bottom in cycle. 2. Second thing is that we have a track record. We have generated literally billions of dollars of value over the last twenty five years in a country that we know very, very well. Well on the political governmental and mining business in Mexico. I think the other thing is that we look where we’re positioned right now besides a strong balance sheet we’re going to start generating cash. We have a mine that we’ve been mining now going on five years. It was a little bit difficult to start up, but it’s working really nicely now. You’re gonna see production growth over the next couple of quarters. So when you have production growth you have strong balance sheet and then we have Los Ricos. Now we’re back in our wheelhouse. Our wheelhouse is drilling like we did and Ocampo. We’re just drilling around an old high grade or sheet. That’s where we’re starting. That’s basically drilling for resource. But we have 35km  there and we have other targets that we’re starting to trench. We’re gonna have some news about some of those results. Those targets are going to be the Exploration Development, we hope we find ore shoots that have never been discovered before. And when you look at what was there and was mined in the 1920s, and you say what would it look like today with the heart still left. I mean it looks great sitting there as a bulk target. It’s going to be one of the hopefully real the high-grade that mines. But you say well what about finding one of those where nobody found it before and all the heart there. Then it’s going to be a real bonanza. So we have that opportunity. So I don’t know if a given five reasons. But I’ll tell you, it’s cash. It’s experience. Technical team, knowledge and we have the right project now. So those are gonna be the drivers. We’re gonna have a lot of news coming out over the next six months. And we have catalysts that are gonna drive that stock. We’ve been down for a while like everybody else but we’ve got the now we have the tools in the tool box here to really start greatness about.

Matthew Gordon: And just one thing…the team have got. How many shares do the management board hold?

Brad Langille: Well I’d be the second largest shareholder. So I’m about 10% of the company. Management and insiders have about 30% and then…we’ve had good, even in this market, we had some good institutional support and see some of our institutional shareholders there as well.

Matthew Gordon: Are you primarily focused on institutional capital coming through when you when you need it or do you look at the retail to drive that kind of liquidity and volume component?

Brad Langille: You know I think really this market is going to… the up cycle is going to start with some retail interest first. I think we need to work and generate some more retail following our company. Traditionally, we’ve had a lot of institutional support. Right where we are in the market, it seems that a lot of the institutions have gone away. But I think that will change over the next 18 months. So we’re out there where we were… now we have something to talk about with this new project and the mines working well and the balance sheet. So we’re out there on the road and we’re telling our story and it’s a really good story. So I think we’ll get some interest.

Matthew Gordon: Fantastic Brad. Thanks for your time. I’ve enjoyed listening to the story and I wish you well.

Brad Langille: Thank you.

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Regulus Resources (TSX-V: REG) – A Very Successful Exploration Team, Looking to do it Again in Peru (Transcript)

John Black, CEO of Regulus Resources (TSX-V: REG) sits down with us for an interview. Regulus Resources’s focus is on their Gold / Copper project AntaKori in Northern Peru. They have an experienced and successful exploration team of geologist with Southern American knowledge. $10M in cash will help them continue to drill well into 2019 but they will be looking to raise at the end of the year with a strategic investor.

Click here to watch the interview.

Matthew Gordon: How are you, John?

John Black: I’m doing well, thank you.

Matthew Gordon: Lovely to have you on the show. First time for our viewers. Wondered if you could just start, just give us a quick two-minute elevator pitch, as it were, to help people understand a little bit about the background of the project, please.

John Black: Regulus has the Antakori project and we’re a group of experienced Exploration geologists that specialise in identifying projects like Antakori that have potential to become very large Copper or Copper Gold deposits. And in 2012 at the market bottom, we were fortunate to be cashed up, we identified the project and we acquired it by merging with a company called Southern Legacy. In the last two years, we completed our first major drill program. And recently in March we announced a very exciting new Resource that we consider to be an interim Resource. As we continue to drill this year, we anticipate it will continue to grow.

Matthew Gordon: Quickly run us through the financing component here as well. You’re sitting on a lot of cash, which is great for an Explorer. But talk us through some of the shareholders and the way that that’s been structured.

John Black: As a junior Explorer we depend a lot on a loyal shareholder base. Regulus is a company that was spun out from our predecessor company called Antares Minerals. We made a nice discovery and sold that project to First Quantum in 2011. And the group of shareholders that did well from that fortunately are supporting us to continue as we move forward.

Matthew Gordon: There’s not a lot of retail out there is that at the moment?

John Black: There isn’t. We have, actually, most of our shareholders are fairly aligned with those of us in management and looking towards an endgame where we’re making a discovery, we’d like to drill it out, and then monetise it. We have one large shareholder called RouteOne. It’s a fund based out of San Francisco. They own about 24%, and as management we own a little over 14%. So, the shareholding is quite tight. It’s difficult to get a position, but most of our shareholders are aligned in the endgame. The discovery, the revealing the full value of the project, and then monetising.

Matthew Gordon: Okay so maybe let’s just come on to that in a second. Because I’d like to understand a bit more about the team and the relevant experience and, obviously, with Antares you had a huge success story and I can see why some institutions would continue to back you. So, tell us a bit about Peru, it would seem quite hot. A lot of people are talking about it in PDAC as a good destination for mining. Can you tell us a bit about it?

John Black: Well Peru is… we specialise in Exploring in South America, myself and Kevin. Kevin Heather, who’s our Chief geological officer, the two drivers behind the company really. We’ve had many decades of experience in South America. One of the reasons we really like Peru is that it’s a nice balance between being already established as a mining country, yet still having good potential for additional discoveries. And that mix, that you can Explore in most countries in South America with potential for success. But we always seem to gravitate back towards Peru as being that place where you can find it. And if you find it, you can turn it into mine.

Matthew Gordon: Yeah and you’re also surrounded by some quite large interesting companies as well. You seem to be in the right postcode, I think is what I’m driving to.

John Black: Yeah. Very much so.

Matthew Gordon: Yeah. So now you had a Resource come out recently. So why don’t you tell us about that? You say you want to follow up quite quickly with a second resource. What sort of scale of project are we talking about here?

John Black: When we acquired the project it already had some previous drilling. It was enough to show an Inferred Resource of about 300Mt at about a 0.8% Copper Equivalent. Having both Copper, Gold, and actually a little bit of Silver as well, we completed about 23,000m of drilling in our Phase 1 program in 2017, up to the end of 2018. With that we almost doubled, more than doubled, the existing drill Resource base, the drill database. And it was time for us to do an updated Resource. The resource that we recently announced, it was March 1st right before PDC, it contains 250Mt of 0.48% Copper, 0.29g/t Gold, and about 7.5g/t of Silver as well as 267Mt of Inferred Resource at 0.41% Copper, 0.26g/t Gold and about 7.5g/t of Silver. So, combined over 500Mt, a nice increase from what we started at. And, about half the deposit moving to the Indicated category now. And then we want to emphasise that this is an interim Resource. As we continue to grow, as we continue to drill we anticipate the project will increase substantially.

Matthew Gordon: So, what does that do to things like… we know your market cap is… what’s that do for you NAV numbers or have you any sense of the economics of it? Because those are quite low cut-off points, so I guess, it’s that some indication of the style of project that this potentially could be?

John Black: Well one way to take a look at these type deposits, we’re a little bit early, we’re still in the resource definition stage and we don’t really know how much deposit we’ve identified yet. We anticipate it’ll be substantially larger than it is. So, it’s a bit early to be putting NAV or preliminary economic evaluation (PEA) around the project. But one thing we can do is we can compare the deposit to previous sales of similar type deposits on this. And what we’ve seen over the last couple of decades is that projects that are at the PEA or pre-feasibility stage (PFS) are demonstrated to be large and economically viable Copper deposits, typically are acquired by major mining companies for about $0.04 per pound of Copper or Copper Equivalent in the ground. If we take a look at Regulus currently with our new Resource we’re valued at less than a $0.015 per pound in the ground of Copper.

Matthew Gordon: You’ve been very clear that you are Explorers. You’re there to not get into the build phase or start producing. Your model to sell out to a mid-cap or large producer, is that right?

John Black: Yes, that’s right. But having said that, what we would do in order to define, acquire and define and show the size of a project that might be of interest to a major mining company, it’s very important that we have our eye towards economics and that we do absolutely everything just like we would build the mine. Even though we clearly state that we prefer to be on that steep value-add part of the curve between Discovery and pre-feasibility (PFS) and that our skill set is not the skill set required to take that to become a mine in the future. We do everything exactly like we’ll build it ourselves. That’s the best way to demonstrate the economic viability of a project and attract a buyer.

Matthew Gordon: And also ensure there’s no discount applied by the buyer.

John Black: Absolutely. It’s interesting what we’ve learned over the years is that when you’re on a project like this, a lot of us think it’s simply drill it out and move it up through the stages of a valuation and PEA to Pre-Feas to Feasibility. But what we like to do is, we like to identify the potential weaknesses in the project and really emphasise on those and demonstrate what can be done about those, how to move forward. So, when a project like Antakori, we don’t worry about grade. We have plenty of grade. But we were focusing more on characterising the styles of mineralization. It’s a fairly complex deposit. And working on identifying potential deleterious elements. And showing how we can tackle those as we move forward.

Matthew Gordon: So, you must be quite confident about where the Copper market is going in terms of the future of Copper, Copper as part of battery minerals, because you don’t have the skills today in-house to build this out or get into production. But again, Tantahuatay, you’re being very frank about that. But if the market didn’t go the way you want it, would you make those changes?

John Black: You play your hand out as it goes forward. If we show that the size of this project is an economically viable project, but the market’s not in the right moment for potential buyers to be looking for these type projects, we have a choice of hunkering down, waiting until the market improves, or moving it forward ourselves by retooling the company. What we attempt to do is to identify those projects that almost independent of metal price will be of interest to major companies. However, the major companies tend to buy these type projects when the market’s hot. They buy at the top of the market, it’s generally the case. That’s when they’re cashed up and that’s when they’re encouraged to look for new projects.

Matthew Gordon: Okay. And you alluded there to the fact that you’ve made people aware, or you tried to understand, and make people aware of what the problems were and how to overcome those. You’re again quite frank in your PowerPoint, you talk about three issues that you’ve had to deal with. One being the land ownership position. I think you’ve resolved that with the JV with Southern Legacy Peru. Is that right?

John Black: Yeah. There were three potential challenges on this project when we first started looking at it. The group that had it was called Southern Legacy Peru. And they were working on it. The first was a rather complex land situation and Southern Legacy had done an excellent job to consolidate the district and clean up the title issues and so that issue is largely out of the way and particularly with our joint ventures with the neighbours on this. The second issue was historic rejection from some of the communities for previous exploration activity. And when we took a close look at the situations that had happened there we realised that the previous operators on the project had been working in a way that wasn’t very transparent and wasn’t with full social license. It’s important to point out the two communities that we’re now working well with have allowed the construction of two mines since those incidents happened. So they’re not anti-mining whatsoever at all. They’re just demand to be treated fairly and that’s our motto and how we like to work as we move forward. So, we’re finding it quite easy to work with the communities in the area.

Matthew Gordon: Right. I mean you do talk about the, I mean, this is a slightly technical one. I think it’s worth getting into here because there’s some confusion out there as to how you’re going to tackle it. And that’s with regards to the arsenic content in the ore body. I mean I think there’s number saying that 54% of the ore body is within tolerance and the rest not so much. How do you tackle something like that?

John Black: The first thing that is important understand that the Antakori deposit actually consists of two distinct alteration mineralization styles. There is an earlier scarn and Porphyry related mineralization that is relatively low-arsenic and metallurgically similar to many operating mines and capable of producing a nice clean Concentrate. And then somewhat later and partially overlying the deposit is a high-sulphidation epithermal system that has Copper Gold sulphides as well, but those Copper Gold sulphides are associated with higher levels of arsenic. So approximately 40% of the project right now has high arsenic and approximately 60% of the project has as moderate to low arsenic. What happens is that if we have high levels of arsenic in our ore, when that arsenic is associated with a mineral that also has the Copper, when we make a Copper Concentrate, we capture the arsenic. And arsenic levels make it more difficult to market your Concentrate. The Concentrate buyers have tolerances. Sometimes they charge penalties up to a certain level or if you get very high levels, it can be a Concentrate that’s not attractive for people to buy. And so, it requires extra treatment either at the smelter where you sell it to, or there are a variety of emerging technologies that we can apply to treat the material before we sell it to the smelter as well.

Matthew Gordon: Right. That’s interesting. When you say emerging technology, these are well-grounded, well-used or are they emerging?

John Black: They’re actually… it’s a mix on this. We have conventional roasting which has been around for a long time and is one way to treat Concentrates that have deleterious elements like arsenic. It is been modernised in many ways. There’s currently a large roaster in process at the Hena Harles Mines mine that’s owned by Codelco in Central Chile to process these higher-arsenic concentrates. But there are also, what’s a little bit more emerging is the pressure oxidation technique and many companies are trying to tackle this worldwide. Arsenic contents are increasing in Copper Concentrates and people are looking at technology that can be applied by pressure oxidation. It’s essentially an autoclave that allows you to oxidise your material and sequester the arsenic into a stable safe form. And it actually has some benefits that you improve your Copper and your Gold recoveries at the same time.

Matthew Gordon: And I think some people were asking the question, could you blend it?

John Black: Blending is also a common technique that’s used right now, either blending between materials that you have on your own site or selling your Concentrate to a group that has a lot of clean Concentrate it can blend. So, there are specialist third-parties that blend concentrates for you, prior to sending them to smelters. But quite frankly on the project we have right now, we’d like to develop methods that that higher arsenic material is economically valuable. So, we anticipate that we’ll be doing quite a bit of metallurgical testing in this next year in exploring the different avenues. The pressure oxidation technique that I mentioned is highly promising. The challenge really is overcoming the capital cost and the operating cost. But that’s where the higher grades that we have at Antakori come to play and we anticipate we’ll be able to support those higher costs associated with higher grades.

Matthew Gordon: So, I guess your preferred solution is go and discover additional ores which are clean and focus on those initially, in terms of your optimisation of the project.

John Black: That’s really our strategy right now. We naturally want to find all of the mineralization that’s on our properties or properties that we have access to. We anticipate as we move to the North we’ll be finding additional mineralization and that mineralization will be cleaner. So, depending on what we find in the entire centre of gravity of the opportunity might move towards that cleaner mineralization and input the arsenic-bearing material that’s a little bit more metallurgical challenging further down the road.

Matthew Gordon: Right. And so, there’s one question from some of the chat rooms, which no one had an answer to.  So, what’s happening with hole 30?

John Black: Hole 30 we just announced a couple of weeks ago and it’s a very interesting hole. It’s a 500m step out. It’s one of our first holes that moves to the North or Northwest from the main area of our drilling. We had an opportunity that there was a previously existing pad that we could set up on. So, the pad itself was not ideally located but was a nice step out into a new area. And we encountered both high-sulphidisation mineralization in the overlying volcanics, as well as more porphyry or porphyry-scarn style mineralization at depth. The grades were lower than I think some people anticipated we’d have. They’re approximately 0.25% Copper and about 0.15-0.25g/t Gold. But over very long runs. We find it highly encouraging. It’s between 0.3% and 0.5% Copper Equivalent and it’s a 500m step out. And it’s actually between several promising geophysical anomalies. So, we consider it a proof of concept that we’re moving in the right direction. And probably the most important point on hole 30, is the intercepts in the scarn and porphyry-style mineralization are very low arsenic. So it’s confirming the idea that there’s additional low-arsenic mineralization towards the North.

Matthew Gordon: Well thanks for getting into the technicalities of that. Can I come back to the Resource? I’m looking at page 17 of the recent PDAC PowerPoint. I believe it’s the most recent one. You show the Indicated and Inferred numbers on there. You do use quite high numbers for the Copper and the Gold in relation to the spot price today. Are you getting some sense of the economics…? I know you say it’s too early for a PEA and it’s too early to say what precisely you’ve got here today but what is the process that you’re going through to make this attractive to mid-caps or majors?

John Black: On these it’s a little bit of taking a look at volume versus grade on this. And what are appropriate cut-offs for material. So, we use a 0.3& Copper Equivalent cut-off. As our reporting line grade. But you will notice in many of our presentations, we show the size of the deposit at different grade cut-offs. And some of the things that we’re very encouraged about on this initial resource for us, it’s our first Resource that we put out on the deposit, when we see that we have a cut-off grade and the reported grade is more than double what the cut-off grade is, that’s a very good indicator that the project is quite robust. So, in our case, we’re using a 0.3% cut-off grade. And the Indicated category that results in a 0.48% Copper grade, 0.29g/t Gold grade and about 7.5g/t of Silver. So that’s approximately 0.7% Copper equivalent. So, applying a 0.3% cut-off grade results in a 0.7% Resource reported on that. That’s a good indicator that your Resource has substantial zones of relatively high-grade. And the reason that we use the metal prices that we use for this stage is that’s used to drive the pit. And so that’s not necessarily the metal values that we’ll use when we do preliminary economic (PEA). It’s common to see two sets of numbers on that. One is to drive the pit and then once you have a pit, when we get to a PEA stage, we will most likely use values that are closer to current prices or even lower than those.

Matthew Gordon: What permits do you have now and what permits will you need as you move forward?

John Black: We have a portion of a project that extends on to neighbours’ ground and those neighbours are a joint venture that operates the Tantahuatay Mine. So, the Tantahuatay Mine is immediately next door. It’s operated by a joint venture company called Coimolache and Coimolache is a joint venture between BuenaVentura and Southern Copper which is Grupo Mexico’s Peruvian sub, as well as a small third-party group in there. And they’re mining the oxide cap over a very extensive Copper-Gold sulphide deposit that is the same deposit that we’re defining on our ground. So, the neighbours have reported over 450Mt of Indicated Resource at about 0.7% Copper and 0.2g/t Gold and also a little over 480Mt of inferred resource or over 900Mt of combined Resource at relatively high-grade. Immediately adjacent to the mineralization that we’ve just announced. So, the combined deposit is significantly larger than what we’ve shown on our ground alone.

Matthew Gordon: All right. So that whole area is heavily industrialised, in a sense. There’s going to be no issues around the permitting component going forward?

John Black: That’s one of the things we like about this. We’re in essentially a brownfield situation. Where we have an operating mine immediately next door. They’re mining the oxide cap over a large Copper-Gold sulphide deposit. They have about 5yrs-6yrs of mine life left. And they didn’t have the opportunity to make the transition into the underlying Copper-Gold sulphide mineralisation. We have a portion of that deposit. So, it really sets a nice timeline on the project to move forward. And what we’ve done is we’ve established agreements with the mine. They’re best described as collaborative exploration agreements. If we each knew what we had, we’d probably be entering into a joint venture or some sort of a sales negotiation right now. But quite frankly, we each think we have the better part of the deposit and better could be larger, higher-grade, cleaner, in our case, or closer to the surface. So, until we each drill out our mineralization, we aren’t really in a position to enter into negotiations. But the nice thing is that because that oxide mine is progressing and running out of ore in the not-too-distant future, we’re highly motivated to move the project along quickly.

Matthew Gordon: So, I just needed to go down that line of questioning, there was some discussion, again chatrooms and forums, around block caving as a potential option for you if permitting was an issue. So, I think you’ve knocked that on the head.

John Black: Well really, it’s logical to make an expansion of the existing pit. And the mineralization we had, when we floated the pit, much of it reported quite easily to the pit on there. So, it’s fairly…it’s a good indicator. It’s quite robust and it’s very much in a geometry and an occurrence that’s natural to exploit as an open pit on that. It’s interesting to note that the pit that we floated, had a strip ratio of less than 1 to 1, It was 0.85 strip ratio. So, it’s indicating that there are large volumes of mineralization close to the surface. However, some of the people in the chatroom might be pointing out our more recently announced hole 26. And hole 26 was a hole that we drilled farthest to the North. So, the hole that we’ve been able to reach out is as far to the North as possible on this. And we had the good fortune on the bottom of that hole to intercept 473m of 1.16% Copper and 0.2g/t Gold. It’s a Braccia that’s been healed by calpobyrite and bornite. And that style of mineralization is currently outside of the Resource that we’ve reported. Partly because it’s a hole by itself. So, there’s no support around it. It’s also a little deeper. We anticipate as we drill that out that some of that will be captured by the open pit. But those grades also open the possibility of underground mining, if that’s a more viable operation, either in combination with an open pit or by itself.

Matthew Gordon: So just quickly on your team. You’ve been together awhile, you had a big success back in 2010, 2011 was it? When was the…

John Black: 2010, late 2010.

Matthew Gordon: I mean it was… well, tell people. It was significant.

John Black: When we set up as a company, really the company was founded by myself, Kevin Heather who’s our Chief geologic officer and Mark Wayne who’s our CFO. And we were set up by some other gentlemen who were running companies and had the idea that Copper prices might improve in South America. As we set up, we formed a company to do just what we did with Antares, and what we think we’re all well on our pathway to doing with Regulus again, is carefully identify a project that has that potential to be large enough and economically robust enough that a major company would like to acquire it from us. That’s based on decades of experience. Kevin and I have both lived and worked in South America for many decades, more, probably, than we care to admit on this. And we have access, we have language abilities, and we have familiarity with the ground. So, we scour through our contacts and our knowledge of the area to identify these projects. They’re hard to find but once you find them, get on the right one, drill it out with good support from some of our major shareholders, and then ideally sell that. So, with Antares we had the good fortune to discover the Kira deposit. Drilled that out over a number of years, completed a PEA on it. We’re just at the point of deciding to move it to pre-feasibility and First Quantum made a move on us and elected to acquire the project. So, a project that we paid $15M to acquire in stage payments we ended up selling for about $650M at the end of 2010 to First Quantum.

Matthew Gordon: That was a great result for all concerned. I guess that’s why you’ve got the following you have today. So just on that, you’ve got some cash, which will take you through to when, how long will it last?

John Black: We have a little over $10M in the account right now. We’re projecting 25,000m of drilling in calendar year 2019 on this as well as additional metallurgical work and acquisition of surface. So, we will need to do some type of financing before the end of 2019. It’s not immediately urgent and we have some very exciting targets we’d like to test before we get to that point. But we will seek alternatives to do an additional financing sometime before the end of the year.

Matthew Gordon: And would you expect that from the current institutional shareholders you have, or you’re going to go to the retail market?

John Black: Well it’s kind of an interesting market for juniors like ourselves right now. It’s increasingly difficult and uncommon to see more traditional private placements that we’ve all been accustomed to for quite some time on this. And almost all of the serious financing, the larger financing for groups like ourselves that have a good project, they’ve really come with the benefit of a strategic partner. Many times, recently those have been mining companies that come in and supported to take a 9.9% or 19.9% position. We have the benefit of having Route One, our major shareholder, is kind of being our cornerstone investor on that. So, we’ll explore various combinations on that where, even though it’s a difficult market, we have established large investors to support us, as well as a number of new friends that are curious about watching how we move the project along and there are potential alliances that could emerge from those.

Matthew Gordon: Right. And I think it’s well known, well understood that the retail market is the thing which drives the share price and clearly the better the liquidity, the better with the volume on the retail, the cheaper the money is for you. Not necessarily what your institutional partners want to hear, but that’s good for you and it should ultimately be good for them. So, what are you doing to drive that understanding in the marketplace at the moment?

John Black: Well as we move through stages in the projects, when you really early on want to make those early discovery holes, you see increased volume on that. Now we have a lot of shareholders who position themselves pretty well and are kind of happy to watch their position. So, we need to develop an additional wave of shareholders to come in. And we’re doing that through increased interviews and increased marketing awareness to get the story out. Quite frankly I think one of the main drivers that will be for this, is that if we see the Copper price really take off on this. Where I think …I just came out of the Osisko meeting and in Santiago and there, like many other places, there is a strong anticipation that there’ll be a demand-supply gap in the not-too-distant future and, most likely, a subsequent rise in Copper. I think everybody realises that’s on the way. It’s driven by electrification of vehicles and a number of other increased uses of Copper, at the same time Copper production is declining. So, I think everybody thinks it’s happening but everybody’s a little bit nervous to jump in. And my experience on this is that when we see prices move on that then there’ll be a sudden turn and we’ll see more likely increased liquidity, increased interest in opportunities just like we have.

Matthew Gordon: It will be interesting see how that turns out this year. I think as most commentators always say, ‘they’re right, they just don’t know when they’re going to be right’. So, we shall see. John, thank you very much for your time today. That was very interesting and thank you for sharing that with our viewers. Appreciate it.

John Black: OK great. Thank you very much.

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