Transcript

Vince Sorace:
Hi. I’m Vince Sorace here to talk about the Kutcho Copper project feasibility study.

Matthew Gordon:
Vince. It’s good to see you. We saw you not too long ago, middle of September. I think we had a great conversation then. And this was a moment that the market was looking forward to, I was looking forward to speaking to you about the feasibility study, numbers out. How do you think the market’s reacted?

Vince Sorace:
The markets reacted, not as well as I think it should, have to be honest with you. And I think that will come as the markets digesting this news. Because the way I look at this is, we are trading probably one of the cheapest market caps and cheapest price on a P/NAV basis in our peer group, by far, out there right now. And I think people are going to be digesting this over the next period. And I think we’re going to see just on that on a value basis alone, I think we’ve got significant upside still in our share price.

Matthew Gordon:
So you’re not happy? You’ve had a good run of it this year. And since we spoke, you were 85 cents, when we spoke. You’re up over a buck now, the momentum seems to be there. But like you say, you’re still only a hundred million market company.

Vince Sorace:
Yup. I’m tough to please. We’ve had a great run over the year. Yes. And it’s been the build up to getting this feasibility study out. Which I think is an instrumental achievement in the life cycle of this project, don’t forget. I think we talked about this last time. This has been around for the better part of 20 years.

And it’s had a lot of false starts to it. And it never really came to this point of completion, this point of confidence in over 20 years.

And I think we’re there now. And I think what we put out with a very trusted engineering group, like CSA Global, a very robust feasibility study. And our objective was to build this and I’ll use the word of robust again. I didn’t want people out there poking holes in this. I didn’t want the guys like the analysts, and the bankers and all the guys out there who can… This doesn’t have it. This was built, it’s solid. From what we did in the use of our metal prices in the feasibility study, to how we designed and constructed the mine plan around this, to how we proposed the capital around this.

There’s a lot of things we could have done. But this ought to be the most, call it robust study, because I want this thing to lend itself to credibility from a number of standpoints, including M&A. If I’m looking at guys out there wanting to take a strategic investment in this or buy the company, I want this to be real, and this is real.

Matthew Gordon:
But here’s the thing for you. We talked about this last time, a little bit actually. Which was initial capital cost right, 483 million bucks.

Vince Sorace:
Yup.

Matthew Gordon:
You are a hundred million bucks company. There’s a problem with that. It really depends on what you are going to tell the market about what you’re going to do with this feasibility study. Is this a precursor to each trying to go out and raise funds. In which case that’s going to be an interesting conversation. Or is it a case of, “Hey, at least we know what we’ve got. That’s a really good foundation from which to build. Because the other thing we talked about last time was exploration. What’s the plan?

Vince Sorace:
Yeah. Listen, I don’t need to raise $483M right now. That’s down the path. As far as I’m concerned, right now, I’m trading around a probably a 0.2 or less P/NAV. The peers in the group out there right now, and if you want to see it, we put this together, it’s in our presentation, on the website, go take a look.

The average in our peer group right now is creating at about a 0.56 to 0.6 P/NAV. That means I have upside of 3X from here, if I can achieve something out of that peer group and I would also argue that-

Matthew Gordon:
What is that thing? How do you get from 0.2 to 0.6? You’ve put out a feasibility study, your way ahead of some of your peers so there’s a disconnect.

Vince Sorace:
I think now, it’s making the market aware of what we have. That’s what it is. Now again, and I’ll refer back to… And I think I’ve said this. And this project is at a 20 year life, it hasn’t really had a level of confidence that it can get now. Now it’s on us to get out there and tell the world and show the world what this is. And this has primarily been been a 98% retail story for the last couple of years. I don’t have an institutional audience. That’s what I’m hoping to build right now.

And that’s what we will continue to strive for and build over the coming months. So “A”, we don’t need to go out and raise $480M right now, that’s that’s years down the road. There’s a lot that we can accomplish to increase the value of this project and the value of the asset, one through, hoping to achieve metrics closer to our peer group. And that would reflect directly into our share price. And number two is, upside. Now what we’re going to be focusing on is upside of the project. I’ll put up a quick slide here for you and let’s talk about exploration potential. And-

Matthew Gordon:
Before you do that. Before you do, leave the screen up, that’s fine. Here’s the question I’ve got for you. There’s one kind of disconnect, which you do need, and that’s to do with the legacy history of this thing. You said it yourself, this is 20 years in the making. Right. People are making assumptions and connections with the past, which is the big problem that I think you’re having to overcome here. There’s a disconnect that you certainly do want to try and achieve in the marketplace. How do you help people go, “This feasibility study tells us that there’s a good project here. Whatever you thought of it in the past, forget it. It’s time to look forward here.”

Vince Sorace:
Yeah.

Matthew Gordon:
The IRRs are good. Well, I’m not saying they are good. You need to tell me if they’re good or tell me your sales pitch to say to people. “This is a new, old story.”

Vince Sorace:
Yup. It is. Listen, look at the margin. It’s a good IRR. It’s a $460M after tax NPV. But let’s not stop there. Again, this is based on a $1.15 zinc and $3.50 copper, the sensitivity and the leverage to copper on this, is amazing. And actually if you go look at what we said in the press release, and we did two sensitivity analysis here. We did the one to spot prices across the board. Right. Great. And it’s amazing. There’s all $900M plus NPV, on spot prices on this project as it sits today. And that’s $4.50 copper and zinc prices up where they are. Well, okay. Just in case those naysayers that think, “Well, zinc’s never going to maintain itself at a buck 50 or buck 60.” Okay, fine.

Vince Sorace:
Then let’s put all those prices back down to base – zinc, silver and gold. And let’s just focus on copper. Because there are a lot of people believe that copper in the future will move out. Well, if I focus on that metrics and that’s one of the sensitivity tables. Well, at $4 copper today, and that is the long term analyst consensus right now, it’s $4 copper. Leading all of the other metal prices at base case. Well, now I’m talking about having a $613M post-tax NPV and a 30% IRR.

For those of you who are bullish out there, and I go to $4.50 copper. Well, now I’m talking about a $664M post-tax NPV and a 35% IRR. That’s the universe we’re playing in. And also don’t forget my capital numbers, and I would challenge this with previous reports out there, that’s 2021 inflationary built in numbers. Okay. We didn’t cut any cards there. We’ve got current, and in this environment that we know, or there are inflated prices with steel and concrete and all this kind of stuff. That’s built in there. But I’m not using inflationary copper prices at $3.50, I should be using $4 and $4.50. That I think is even more of the picture, which is very compelling.

Matthew Gordon:
Right. I want to come back to something you said, which is, “we don’t need to raise 483 million bucks”. Do you mean, “Oh, we’ll do an equity-debt split?” Or do you mean you’d bring in a partner? And if so, when and what would that deal look like?

Vince Sorace:
Well, of course, I’ve got opportunities. There’s always a debt equity split. I don’t need to raise all that money, number one. Number two is, don’t forget, we’ve got Wheaton. Wheaton still needs to contribute. And there’s two important points to this. I’ve got about $58M US sitting there in the bank for the stream I did with Wheaton. Okay. What is that? About $75M Canadian. That’s there. Two is, we, if you notice in the Wheaton deal, we are talking about a $20M US bonus payment, if I hit a 4,500 ton per day throughput. That’s what this study’s based on. There’s another $20M US. Suddenly I’m over a hundred million dollars funded on this project, with no dilution. That’s just coming from Wheaton against the string.

And then again, yes, you have a big debt component to this. Now, the other opportunity, and this came with me announcing, about a month and a half ago, that was around the royalty buyback from Sumitomo. What I was keyed up on there, was getting rid of the ROFR on the Offtake. I am now freed up to do a strategic deal on the Offtake side. And there’s been no lack of conversations with multiple parties out there already. For the past number of months, we are a very sought after concentrate. We have a clean con., we are in the upper percentile of concentrates. If everybody knows what’s happening in the concentrate market these days, it’s tight. And it’s going to remain tight for a very long time.

There’s another way there against their Offtake that I can raise strategic capital, to go towards the build and the CapEx of this project, without necessarily having to raise that money.

There are a lot of moving parts. And again, let me also emphasize, you’ll see in the final reports that we file, that there’re opportunities. We can’t say that in this press release. But as far as capital goes, you’re always out there looking for used equipment. Which could be a fraction of the cost to build this thing, which drops your capital number significantly. We’ve got other opportunities, low hanging fruit, that we’re investigating right now.

And we’re talking to groups right now about things like taking the road, the access road, which is a $30M budget in the capital. And actually assigning that to a third party, who would finance it. Now, we would then lease it back, put that into OPEX, that takes $30M off that 480 number, right off the bat. There’s all these complications-

Matthew Gordon:
Okay. You’ve got some optimization components that you can do, obviously you would.

Vince Sorace:
Correct.

Matthew Gordon:
Right. But at the base case, we know what your costs are. The question for me comes back to that. I gave you some clue, some options there myself, which was, here’s your feasibility study, so what? What do you do with it? What’s the plan?

Vince Sorace:
What do we of it now is, we drive this project through permitting to a production decision, number one. Okay. That’s the strategy now. In the interim and parallel to that is, how do I get the value of this company up to where it should be? That’s going to come through educating the market now, because as you said, it’s been 20 years, it’s been a little disjointed. Now we go out and educate the market. But the other important thing, and this is where I want to share my screen with you here is, the exploration upside potential with this project is amazing.

And this is value that we believe we can get into this company next year. We’ve been, in the last couple of months, and this primarily came about as we shifted into this open pit mining scenario for the Main lens. And you can see that it’s the Main lens, the Sumac lens and the Esso lens that comprise our project right now. The Main lens in the Esso lens are what made feasibility study. Sumac is all inferred. That’s close to 10 million tons at about one and half percent copper, that hasn’t made this feasibility study. There’s two parts of low hanging fruit here. What can we do to extend the open pit with respect to Main? That is low cost production. Okay.

And we’re looking at two different directions. Right. But especially you see that gap between the Main and the Sumac lens, that has historically only ever had one drill hole put in. We believe that the mineralization does trend between Main and Sumac, with a much lower cutoff grade now, and much lower production costs. That is a huge opportunity where if that mineralization exists and potentially even the top portion of Sumac, which is near surface, if we can expand the pit in that direction, that’s instant value.

And that’s something that you can do, and you’ve seen other companies do. Where we can drill that off quick. We can get to a level of confidence quick, and we can do a sidecar PEA, or a sidecar even PFS around this, to show the value that can come into the company into this mind plan very quickly. And the other part of the low hanging fruit is Sumac. Our development basically runs, when we start on Main and we’re driving development straight down to Esso, literally year one, we pass 90 meters in front of the Sumac lens.

Sumac is something that we’re going to put some money into. We’re going to bring it up in confidence from inferred into M&I, that’s mine life. Right. That could potentially be another four to six years of mine life. And it’s sitting there, it’s low hanging fruit. It’s just drilling it off at this point and seeing how it gets into the market.

Matthew Gordon:
Okay. This is quite good actually. Because at 10 – 11 years, that’s good for a company. It’s not necessarily that attractive to a major or strategic partner.

Vince Sorace:
Yup.

Matthew Gordon:
If you can extend the mine life, then that could be a game changer for you. Because this comes 15 – 20 years-

Vince Sorace:
Of course.

Matthew Gordon:
It’s a different set of conversations. And that’s where I wanted to get to with where does exploration fit in the mix here? Because you’ve got the feasibility study, the side car, of whatever else you discover sitting in between Sumac and the Main is the plan. What do you do with the feasibility study for now? Just park it up, focus on exploration for a bit, because you think you can add to it.

Vince Sorace:
Correct.

Matthew Gordon:
Right. Okay. Have you got money? How much money are you going to allocate to that?

Vince Sorace:
We’ve been working through two months because our exploration efforts and our strategy around exploration, shifted now that we went to the open pit on Main. We’ve been working vigorously with our engineering consultants, who did a lot of our work in 2018, to put together an exploration plan. We’ve got that plan in front of us. Now it’s for us to choose how aggressive we want to get, how much we want to spend?

I could probably, next season, drill up to 30 or 40,000 meters if I wanted to. Okay. That’s the extent of the plan that we’re talking about here. Because it’s not only in resource conversion or call it, pit expansion and all of this. But there’s also blue sky opportunity. And these are the blue sky targets.

This horizon that hopes to be Esso, Sumac and Main deposit, repeats and folds itself three times through our claims license. It hasn’t seen any exploration since 1990. And VMS districts tend to get bigger, when you go at them. But back to your point, well, how are we going to get money? The nice thing is that we’re in Canada and BC and what we’re able to do here is raise money, it’s called flow-through money.

And right now that capital, which can go directly into exploration, I can raise money at a 1.45 factor or premium to market, to raise any money I need to do, for exploration. Listen, I’m going to pick my spots. I think I’ve said this. I am cap table sensitive. I think we’re worth more than we’re trading today, significantly. I’m going to be doing a lot of work over the coming number of weeks to try to get that share price a lot higher, where I think it should be.

And if I can raise money at a significant premium, with little dilution, to something that I think I can add a ton of value to, just by doing this work in eight months, starting from today. Sure, we’re going to be going at that aggressively.

Matthew Gordon:
When will you make that decision about what that number is?

Vince Sorace:
Probably in the coming month.

Matthew Gordon:
Right. Okay. Because obviously you’re sitting there at 1.1 billion pounds of copper equivalent. Right. At the moment in terms of the M&I, you’ve got 460M or so, whatever, something like that, on the inferred component. You could bring as much as that three, but the exploration bit, how quickly could you do this sidecar, in terms of bringing some numbers into the M&I category?

Vince Sorace:
Quickly. We can drill this out next year. The exploration plan that we’re looking at is, we can drill out this next field season. And considering we just finished a feasibility study and we’ve got all the updated metrics, to everything else that would fit into a sidecar PEA, or a sidecar PFS, we can do it very quickly. We can do this next year, all of it.

Matthew Gordon:
Right. Okay. Because what you’re working towards or what it seems to me you’re working towards is, building something, painting a picture, for a mid tier company to come in and either work with you, or certainly lend you their balance sheet, to be able to get this thing financed. Because copper’s not cheap, generally. I know you’re a low cost version of copper, but it’s still not cheap, in terms of capex. In terms of the number of pounds of copper equivalent that you think you need to be able to present to someone like that. What’s that number? It’s not 1.1 billion. What’s the number?

Vince Sorace:
It’s hard to say. I don’t want to speculate too much on that, but it depends on who my audience is. Let’s be realistic. Is this a project that First Quantum or Lundin is it going to move the needle there? Probably not. Right. There’re other producers in our universe, that I think it’s already attracted to. Okay. I think we’re already there. And I think we’re already there with respect to even just the confidence in the potential upside in mine life, as it’s presented. I’m going to continue down that path and I’m going to prove it out. And I’m going to do all that. But I think we’re already there. Now it’s playing the game, it’s moving down the path. It’s continuing, moving this thing forward.

You’re right. The feasibility study shows confidence in the asset. It is what it is here. Now, everything we’re doing, in parallel as one, moving it down the path to permitting, because the more and more you get down that path and closer to permitting, essentially the higher the value of your asset becomes because you continue to de-risk it. Right. Number one.

Number two is… And my permitting budget, isn’t a lot of money. And that could be part of a financing package that I do, with the strategic. But it’s also moving this thing down the path. Now all I’m going to be talking to people about is, well, how much more valuable I can make it. I’ve got the confidence in the feasibility study out. People know what this project can look like at minimum today. Now I want to show them, well, how big can it get? How much better can it get? And all this potential is there.

Matthew Gordon:
Right. Because I want to come back to the point you made earlier, which is you are so heavily skewed towards retail. It’s probably damaging for you. You’re restricting your opportunity. How do you go about telling institutions what it is that you’ve got? Because I’m looking at this thing going, “Okay. That’s quite a nice company.” And it’s a company maker and saying, “Right. Nothing huge. Just a good solid company.”

But if you get some institutional money in there, I think it helps you go and raise the capital that you need. It may improve your liquidity, who knows? Depending on how they play that. But it makes your money cheaper, when you do come to raise capital. Right. That’s why it’s important. And I think it’s important for the retail guys too, but it’s the institutional money that’s going to give that solidity and comfort. What are you do about that?

Vince Sorace:
Well. Listen, I’ve been in the capital markets for 30 years. I’ve got relationships with pretty much every bank on the street. And that’s what we’re doing now. We started doing that two, three weeks ago. But I take it back to, everybody was waiting to see this study. Now do the traditional non-deal road shows, with the bankers, I’m looking for analyst coverage. I got one out of Red Cloud. Okay. That came out. That was actually prior to my fees. I think we’ll see an update to that come out soon.

But I think I’m going to be set up here for a number of different groups to provide analyst coverage on this. And we’ll post those on the website when we get them. Or who wrote it, people can get it themselves. But now it’s hitting the street, doing these non-deal road shows, getting awareness out there over the project, talking up the story. That’s how we start building the institutional investor audience. And then ultimately, when I think the time is right, then you can do things like an institutional financing and then really bring them into the mix.

Matthew Gordon:
Well, that’s what I was going to ask. You’re going to need to do that, to get them be interested to one, cover you. And two, come in and quickly get them into this. Not just picking up scraps here and there.

Vince Sorace:
I’ve already been offered institutional capital, right now I’ve said no. Okay. I think I’m too cheap. I’ve said no. I think, and I don’t need the money right now. I will take my time. I will go out there. I will do my best, to market the story, to try to get something as far as a valuation that I think we’re more comfortable with. And at that point I will look at raising some money. But it will be a more proper price point so there’s more upside for the shareholders.

Matthew Gordon:
Just with the institutional hat on or dust it off, put it on. People talk about gold being anti-inflationary investment, in the sense that in troubled times gold is a safe harbor and all of that. Do you think that some of these green metals, like your coppers, like your nickels, can possibly get that status, where they are seen as anti inflation measures, given the electric, thematic and the whole greening of whatever we’re doing?

Vince Sorace:
Listen. The theme or the thematic piece to copper right now, is tied into so many things. We’re tied into the whole battery metal movement. Right. We’re there and that’s never going to go away. But we’re also tied into this entire infrastructure movement out there. Look what the US just announced. And they’re throwing 500 billion dollars at things that are copper intensive, let’s say. That’s not going to stop in this world, especially post COVID, you’re going to see many countries around the world doing this. Throwing money at infrastructure and infrastructure spends these days are very different than they were 20 years ago.

20 years ago, very traditional roads, bridges, and yes, wires in the sky. But today, look what the US is spending on. They’re spending it on renewables, they’re spending it on EV infrastructure. They’re spending it on these things that are multitudes more copper intensive, than any of the traditional infrastructure spends in the past.

Matthew Gordon:
Yeah. It’s interesting. I was reading something by Nicholas Snowdon, he’s the commodity strategist at Goldman Sachs, and he was saying that basically the copper markets sleepwalking into a huge supply crunch, akin to what happened in the oil market back in the 2000s.

Vince Sorace:
I see so.

Matthew Gordon:
The signs are there. That’s for sure.

Vince Sorace:
There are signs of that. And listen, I alluded to the fact that I’m already in conversations with strategics on this and with respect to, in term or broader type financing objectives, these guys have their feet on the ground. These guys are the truth to what’s happening out there in the copper market. And trust me, they’re worried about supply side, in the copper space, in the years to come. It’s a good sign. I like hearing that, obviously. But like I said, those are the guys with their feet on the ground. And in the concentrates market, and just generally speaking the supply side of the copper market, they’re not seeing this let up, for many years forward.

Matthew Gordon:
Okay. Well. Look Vince, I just wanted to check in with regards the feasibility study. I’m glad we had the conversation about exploration. I think it’s paints a clearer picture on my head about the way forward and some of the options available to you. And maybe we’ll come back on and talk money at some point, as well. Appreciate your time today.

Vince Sorace:
Thank you. Always a pleasure being here.