On Wednesday 11th November, we introduced our first Mining Investor Forum in partnership with London South East. Traditionally a multi-sector conference, for this quarter our Forum evolved into a timely, specialised event, focusing on the mining sector.
Driven by renewed interest in “safe haven” assets and Bank of England discussions around negative interest rates in 2021, the line-up of presenting miners provided investors with valuable insights into high conviction investment ideas and a chance to interact with management through the Q&A.
New Pacific Metals was one of three companies presenting during the forum. Although we were unable to have a live Q&A session, we recorded it afterwards and Keith Hiscock took the opportunity to pose questions asked by the audience during the presentation.
Here, we transcribe that Q&A (edited for concision). You can watch the video of the full presentation here.
We’ve got quite a few questions here to crack through so let’s start with the first one: can you expand on the next steps for the Silver Stripe Project now that you’ve identified three significant new zones of high grade gold and silver and what effect will this have on production?
So we just got our permits for the Silver Strike Project about a week ago, so I suspect that we will start drilling at within the next week or 10 days, so that would be where we were going. It’s fairly early stage to talk about production profiles; we really have to get numbers from the drill bit to see if we’re right, that this is mineralized to make an economic deposit, but the drill will start turning in about 10 days.
Can you expand on what is the expected outcome of the PEA study for the Silver Sands Project in the first half of 2021?
Our hope is that we will get a flow sheet – meaning we will determine what kind of processing we’re going to need to economically extract this metal – from the PEA. We will get a pit optimization looking at optimizing the pit – meaning, given the type of process that we’re going to use (which is still to be determined by the PEA and the metallurgy), where are we first going to extract metals – are we going to do a starter pit scenario where there’s several small, high grade pits, or are we just going to start and take all of the material and start pushing it through? That will depend upon what the flow sheet says, what the metallurgy says.
We’re doing a second round of advanced metallurgical work now which will answer those questions. It’s a little early for me to go into the into the full details.
Besides the PEA study, what else will the latest round of funds raised in July be spent on?
The funds will be spent on drilling, taking those low-exploration-risk blue areas into the inferred category added ounces. Mainly on drilling, but there will also be hydrology studies, geotechnical studies, geophysical studies. There will be ore sorting studies, there will be pit optimization studies, environmental studies, health and safety studies; so all of the studies that go into moving this into a developing project will be included in those. But the bulk of the spending, still, will be in drilling and bringing more ounces and tons into the resource.
Where is New Pacific in the capex cycle?
That will be determined by the PEA. Again, it’s a little early, but if we were going to look at what the senior management thinks we would be looking at in terms of capex, Mark thinks that we’d be looking at maybe somewhere 8,000-10,000 ton a day operation to start, which could probably put you in the realm of $250-350 million dollars of capex, if you’re looking at that type of throughput.
Okay, we’re moving on now to politics. Cyril’s asking about the impact you’re seeing from the Bolivian elections. How is that going to affect your ties with the government? You mentioned the election during the presentation, which was back in October – probably one of the largest turnouts in any general election around the world, 88% of voters turned out. It was a pretty thumping win, wasn’t it, by Morales?
Morales’ party won this time but in one of his elections he got those kinds of numbers. The election that happened recently really surprised a lot of people. I’m a politico, that goes way back, and I was following it very closely for many reasons, but mainly for political reasons, and the results were that MAS, the outgoing or last ruling party, came in with another mandate, a full mandate, getting 55% of the vote.
What was really striking though was – the Bolivians have a tendency, when they don’t like something in politics (it’s prevalent throughout South America), there’s a lot of protests – in this election there were no protests. They took the results and there were no protests. They’ve accepted them, which is really, really striking. It’s a very positive sign. They want to move on, they don’t want to encumber their government. It’s a very good sign, and good for us. Mark Cruz is down in Bolivia right now, along with Carolina Ordonez who I mentioned earlier, and they met with the Minister of Mines yesterday and things are progressing in what we see as a very normalized way.
There’s a follow-up question, which is: do you think you need to mitigate the risk of higher taxes and possible nationalization?
Anybody who works in a foreign country in mining always has to worry about higher taxes, and given what Covid’s done to the balance sheets of most countries, if it’s a mining-centric country you should probably expect taxes to go up anyway in general.
On the topic of nationalization, I can say this: the party that’s in power now, the MAS party, when Morales first came in (in 2006), they nationalized the gas fields, which would give someone pause about investing in that country. However, the current president, Luis Arce, was the architect of part of that economic plan and they realized within three years, once the gas prices dropped – they took over the gas fields but they didn’t know how to manage the fields, they weren’t adding to their reserves – so when the gas prices dropped, they were in a whole heap of trouble. They called the gas company, Repsol, back in and said, “We made a mistake, we should not nationalize this. We’re bringing you back in. Yes, we’re going to increase your taxes but you’re going to run it, you own it”. I’ve been involved in politics for a long time and I’ve never seen a government stand up and say, “We made a mistake”, and they did. And they still say they made that mistake.
In mining, I don’t believe that they’ll do it – they would have to take Sumitomo, San Cristóbal, San Vicente, and Glencore’s Sinchi Wayra project – I don’t see them doing that; they have given no indication that nationalizing it would be in their best interests as per their foray into the oil and gas fields.
Let’s move on now to a question around the TSX, Toronto Stock Exchange. Are you frustrated about the lack of volume on it? Does that have an impact on your share price and is that why you’re thinking about listing in London?
Yes, well, we have several issues on the liquidity side. One is the fact that our largest shareholder owns 28% and our second largest shareholder owns almost 10%. It takes a big chunk of the tradable certificates out of circulation because they don’t trade them. We started at a disadvantage to start. We currently have three large institutions that are trying to get positions, and that’s hard because, as you just mentioned, the liquidity factor and the trading volumes aren’t as high as I’d like them to be.
However, I’m seeing that change. With our listing on the TSX, and with our inclusion in the GDXJ, I am seeing a daily increase (albeit marginal) but it’s starting to creep up and get larger. When I was at MAG Silver, I saw the same thing. It sometimes takes some time, and we’ve been around a while, but since we did this new project and started ourselves anew, it’s going to take some time to get that traction, to get the liquidity and the numbers up on the daily trading volumes. I think that our view to listing in London would help us as well, yes.
A question around the expected timeline now. This is obviously going to involve forward projections and you may not want to answer this one, but there’s a question: what is the expected timeline coming out of the net loss position?
Exploration companies that don’t have a revenue stream are going to always have a loss. Until you’re actually producing and generating revenue you’re always running at a loss. Your earnings per share are going to be negative until you’re producing something that you can earn some money on. So to answer the question, a long-term view would be – if we build this thing, and we are moving towards it, we have people who can build it – I get the question “are you going to build it or sell it?”. You always should come into these situations believing that you’re going to be the one that has to carry the water over the line, so you’re going to have to build it. I see that as five years away, so if somebody’s asking me about profits and losses, they are going to be five, six, seven years away, because we’re going to be in a loss situation – a negative EPS – until we’re actually pouring silver bricks.
Last two questions. William is asking if you can expand more on the strategic reasoning behind the recent TLG spin-off? And where does the value lie for investors?
The Tagish Lake Project is in the Yukon. It was in the company when I came in. I actually have never been to the Yukon, I went straight to Bolivia. a lot of money was spent on the Tagish Lake Project in an earlier iteration of the company, so shareholder value was pushed into it but it was seeing no value in the marketplace. The market looks upon New Pacific’s Bolivian assets as its main value driver, so having a high-grade, well-established brownfields asset that was just collecting dust and no assets didn’t make sense to us.
In a rising gold market like this, when Tagish Lake has 700,000 ounces of gold, at about 8 or 9 grams per ton, and was a past producer in 1986 of 86,000 ounces of gold at 13 grams a ton… it’s got a mill on site, it’s got a camp, this is an asset that you can easily move to the next level in a good gold market. With those kinds of grades and that kind of a production profile, why wouldn’t we say to shareholders, “let’s get a good management team who have taken these kinds of assets from brownfield to production”? So we’ve got a good team, giving it to shareholders and that’s what we’re creating value for – shareholders. Shareholders of New Pacific got basically free shares of a new company that can create value for them.