Interview with Michael Hudson, CEO of Mawson Gold (TSX:MAW). Mawson Gold Limited is a gold exploration company in two safe, Tier 1 mining-friendly jurisdictions: Finland and Australia.
Expanding the most advanced gold-cobalt resource in Finland. An inferred resource estimate recently doubled to 9.0 million tonnes @ 2.1 g/t gold, 570 ppm cobalt, 2.5 g/t gold equivalent for 716,000 ounces gold equivalent. Five diamond drill rigs are planned to drill 20 kilometres from December 2020.
Matthew Gordon: Can you give us a 1-minute overview of the company for people new to this, and I will pick it up from there?
Michael Hudson: Mawson Gold is a Toronto Main Board-listed company. We are a Gold explorer. We are exploring in our own right in a number of jurisdictions with a focus on a resource-based project in Finland that has flipped from a new discovery to a growing resource. It is in the Victorian Goldfields, in the shadow of Fosterville. We have a few other projects around the world that we are spending money on in Queensland, Australia and out in Oregon. Our aim is to build resources that will ultimately be bought. The only way to do that is to make discoveries via drilling, and we are doing that.
Matthew Gordon: Can we talk about what is happening with your US asset in Oregon?
Michael Hudson: The focus is Finland and the flagship, but a lot of interest is from our Australian portfolio, so it depends on how you view that. The 2 projects that we have are slightly greyed-out on the front page of our presentation because they are 2nd tier projects, that is why we have other people spending money on them. At Mount Isa, we have 60kms of strike along strike from the Cannington mine, which is 1 of the world’s largest Silver deposits. It has produced 5-10% of the world’s base metals and extends at least halfway undercover as it does outcrop. We have been funded 50% over the past few years to do some geophysics and we defined a very big gravity anomaly.
In a post-Covid world, the Queensland government very generously offered it to a number of companies, we were 1 of them, and our project was to drill that gravity anomaly. They funded AUD$200,000, which is essentially, 95% of those drill holes to test that target. The assays are in the lab as we speak and we have a press release out showing the rocks are, in a very technical release saying: the rocks are ‘interesting’. Let’s see what the lab says.
In Oregon, we have a joint venture with the largest landholder in the US. We have 150,000 hectares of a new geothermal field. We made a new discovery there over the last few years. It was clearly not a project that we were going to focus on with Finland, so we joint ventured that out to a junior company that is spending money there. They're drilling there now, and they've got to spend CAD$1.2M to earn 80% of the project and then they can free-carry us to production via a loan, if they find something. We will benefit if the project works and we've got somebody else spending money. Both of those stories are the bonus, but not Mawson’s capital.
Matthew Gordon: How do you negotiate these deals? If they spend their CAD$1.2M and decide to walk away, or they don't spend anywhere near the $1.2M, what happens then? Does everything revert back to you and you find another partner?
Michael Hudson: We're not a project generator per se, we take full exposure to the projects we want to, and when I say we're building projects to buy, we're building big projects. Not little deals like I just described, but sometimes things don't work, and the project may still have legs, so you find a way to monetise that at a smaller scale.
Matthew Gordon: What will become of that small project if it doesn't work out with the current partner?
Michael Hudson: It will come back to us and we'll find a way with the landholder, who's the largest landholder in the US. We've got a partnership there. They're in it for the Royalty and that's why we couldn't put a Royalty on that project and had to work something out. 3 to a party is not always the easiest way to structure a deal. If it comes back to us, it comes back to us, but if we partner with people that we hope can give it the best shot, of course. We don't want people who are going to flip it and just use it as a listing property and not put some decent holes in the ground.
It is an unusual thing for us to do. We don't pick up properties to joint venture out. That's not our mantra. We want to find millions of oz and build projects around them and we take multiples of zeros on that deal.
Matthew Gordon: You've got the Queensland government stumping up 95% of the cost there. What does 95% equal in dollars?
Michael Hudson: It was AUD$200,000 that they funded.
Matthew Gordon: What would you know at the end of AUD$200,000?
Michael Hudson: There wasn't a drill hole within 10km of this Gravity Target. It was on a parallel major structure. Structure is the key to everything in geology for most deposits, and there was some big structure that Cannington formed on. We've got the strike extent and a parallel structure which this gravity anomaly sat on. Literally, there hadn't been a drill hole for 10km. It was real wildcat drilling, and it was a big roll of the dice. In the context of Mawson spending its own money on that target, it would have been too high a risk and out of context with the rest of our portfolio, but when we were given the opportunity to drill it ourselves as opposed to joint venture it out, we took that opportunity.
How did these projects get into Mawson? We picked up projects when we thought Finland was going to be slow to permit and we may need a year or so of other projects to fill the void – that never happened. I've made a career of picking up projects and not everything always works. This is exploration, and if you can find something, it's quite an unusual event. We found a number of things, but it's better than walking away. This is often about relationships and that relationship in the US especially. We actually looked to walk away from that project just in terms of the contract: we'd done what we said we'd do, and we didn't want to do anything else. The landholder wanted us to stay on board and find another partner for that, and it was around reputational risk for that landholder, and they wanted us to stay in that project. We did the right thing from a relationship point of view because we want to do other business with that land holder.
Matthew Gordon: In terms of Queensland, AUD$200,000 has been spent. You raised about AUD$70M in May. How do you go about spending money on each of the different projects? How does AUD$10,000 bucks inform the decision-making process?
Michael Hudson: We've got good context around the style. There are 2 styles that we could have found here: the Cannington style, which is a broken hill-type deposit, and that's a fantastic discovery to make. It has to be big, around 300m of cover, or an IOCG - Iron oxide, Copper, Gold, and there are many of those deposits in that part of the world. It had those characteristics, both of the gravity and the mag. If we can find some ingredients or some metal, ideally, within that hole, that gives us an indication that it has both or 1 of those characteristics and then we're really onto something. It's opening up a part of Mount Isa, that has produced a large percentage of the world's base metals. This is true virgin territory. If it has none of those characteristics, then it's going to be a hard ass to joint venture that out. But we've got a university involved, somebody's going to do a thesis and all the academic work around that to build up a story. We've really got to build up the geological story to determine which way to go then we'll make a decision as to whether we should be spending money there or not. At this stage, it's not a project that we want to spend money on unless we're surprised.
Matthew Gordon: Where was your focus? I noticed in your marketing material you talk about ‘Mount Isa- style’: it's a phrase that gets people excited, but you've also got to do the work to show them what's there.
Michael Hudson: Absolutely. We're managers of risk and risk capital, that's what we do. Many people, the portfolio managers want us to focus on 1 project. We bought Victoria and we went out of our way to show that we weren't defocusing from Finland but augmenting that for a variety of reasons. A way to think about exploration is like a triangle: you have a lot of projects coming in, many go off the side and more progress up. Say the number is 10,000, you look at 1000, you'll drill 100, you'll return to and drill a lot more. At 10 of those you'll find something of interest and 1 of those will be that mine. You've got to manage that process and the idea is not to spend $1 more to find something that isn't there.
Geologists often fall in love with their projects. I'm a geologist, so you've got to make sure you have commercial economic geologists who know when to walk away and you're not trying to prove it's not there. That's the key point. There's a lot of capital around at the moment and the capital markets are a terrible way to raise capital for research and development, which is basically what we are. There are many things that are done in capital markets that essentially piss money up against the wall. That means that you want to back your technical people, you want to walk away and not be locked into a project that the market will slap you down for and you build up again - that's exploration. Most people who invest in exploration should realise the awesome returns that can come when it works, but it is often not a straight line to get there.
Matthew Gordon: How much time, money and effort has been spent there whilst you were waiting for things to happen in Finland?
Michael Hudson: We have been drilling in Finland, not just waiting - that's just a correction there. But the big season for us is just starting - winter. We're spending AUD$10M from the start of July to end of June next year. That will be broken down into AUD$7M that will be spent in Finland, AUD$3M in Australia. It's basically 70/30. In terms of dollars, Finland is the flagship project in that respect, but it's a project that needs a lot more drilling because it is resource-based and we're sitting there literally drilling grids of holes, increasing resources as opposed to drilling to make a discovery, which is the stage we're at in Victoria. That's how it's broken down.
We have spent about AUD$2M in Victoria so far. There's more capacity in the company to spend more or less, their budgets are fixed by the board, but you want to take a logical time to decide. Another adage around exploration is, don't change your budgets midway through unless there's a very good reason to. You have a plan, and you stick to it, but at a certain point you should review things. We've collected a lot of base data in Victoria. Nobody's cared much about Victoria since pre-World War 1. It's had a lot of failures around the oxide Gold deposits and their refractory not really working. They weren't that appealing in a modern-day sense. But the discovery at Fosterville, where these systems can form free Gold has rewritten the opportunity of going high-grade to depth on these epizonal systems that are from a very different orogenic event, 60M-years later than the majority of the 80Moz that have come from Victoria. It's a new style essentially, and it's a new search space. Nobody's collected the data.
Another thing about exploration is that you collect the data, you try to answer the question with that data and then you test it - that's scientific theory. That's where we're at with Victoria; we collected a lot of the base data. We've really made the understandings, we've brought in experts who know this very well, and we collected a lot of earlier-stage drilling and made some discoveries. By February we should be able to say where we are going.
Matthew Gordon: You spent AUD$2M to gather enough information to tell you that it's Fosterville-style. What should the market be thinking about what you've got after spending AUD$2M?
Michael Hudson: We didn't spend AUD$2M to prove it's Fosterville-style because everyone's calling anything in Victoria Fosterville-style. We knew about Fosterville a long time ago as we come from here. I actually put a lot of projects together with a business partner 17-years ago. The only problem was, at that stage they were Fosterville-style projects then and they were 17-years too early for there to be any interest in them.
We've drilled upwards of 5,000. We've done ¾ of the geophysics on areas that have never been looked at. The best way to explain it is to compare it to Red Castle: 17km of veins. We found 40,000 workings over an area of 6x6km. 40,000 workings is incredible. Those old-timers were busy scraping everything and anything, trying to find something. They mined some very high grades from Red Castle. It was mined out before Fosterville was even looked at. Same with Costerfield, Mandalay’s 1Moz deposit. We are 5-6 km from that, along the same structure. Nobody had put a hole in until 3-months ago under Red Castle. They mined 200,000oz at 2g, which in the old days, was a substantial mine. There's the grade in one of these systems and we've just got to find it at scale. So, we do know.
There are 2 very different styles of Gold in Victoria. There are the earlier events, which is Ballarat and Bendigo, which is a deeper orogenic style. Then there's this later-events, 60M- years later. Gold is very late in the scheme of things. It's post orogenic, or at last stages of that orogeny, and Fosterville is of that style. There are only 9 Goldfields historically, including Fosterville, that were of this style, out of the huge Goldfields at Victoria. We've got 3 of those historic fields, we have started looking along strike and beneath those.
Matthew Gordon: How long are you going to spend working out what the mineralisation looks like and what you've got? When are you going to able to talk to people about what it is that you've got there?
Michael Hudson: We put out a number of results from Sunday Creek and we've got some discoveries there already. We drilled 15-20m at 3-4g, from surface, literally, and we didn't really understand that we were sitting on top of this mineralisation. There are more results coming. We finished 10 holes and we have put 3 out so far. We're just getting assays back from there. We haven't put any results out yet for Red Castle, even though we've been drilling there, and we've drilled even more holes. They're shorter holes, around 12-13 holes so far. We're just waiting to put that together. It's a bit of a head-scratcher; when a company doesn't put results out immediately, you can read into it that there's not a headline result, but we feel it's better to put out a coherent story when we've collected all the data, rather than put out titbits of information out of context that won’t get anyone excited. We've told people we are drilling, and there will be a full and comprehensive release on Red Castle in January.
Matthew Gordon: How does that work on the TSX? Can choose which data you put out or not?
Michael Hudson: It is materiality. Materiality is a hindsight measure: it's only if the share price moves or falls that it is deemed material so it's very hard to know, but if we had a hugely hot hole and it started to leak out, we'd have put that out. If we batched 10 or 12 holes in Red Castle, I said we've drilled that many holes, but we might only have half those assays so it's not material, it's a building story. You can call it selective release, but it's just building the story and the coherency around each project.
We made 2 discoveries at Sunday Creek in Victoria and another up in Finland, which has kept the news flow busy. If you look at our news flow, it's Gold, Gold Gold. We've had 8 rigs turning and a lot happening. If it was the only drill program we had, it would be more material.
Matthew Gordon: We're looking at 21m at 3.4g Gold and 5m of 5.2g Gold. Some questions have been sent in asking what the plan is to put out a coherent picture.
Michael Hudson: It will be January at Red Castle.
Matthew Gordon: AUD$3M takes how long to spend?
Michael Hudson: We'll be there in about May/June. That's our budget for the year. We have an opportunity to express that if we keep 2 rigs turning rather than 1, but I think that we should just stick with the 1 rig at Sunday Creek, take a break at Red Castle. We're still to drill Roux, which is the third project to get some stage drilling into a project that's never seen a diamond drill hole, some shallow RC holes, and that's how Red Castle was 3-months ago.
Matthew Gordon: Let’s talk about the main prize: Finland, where you will be spending the bulk of your money. You've had some great drill results come out over the past few months. Can you give us an update on what you're up to there?
Michael Hudson: We doubled the resource in September, based on drilling that we did earlier this year. That brought us to just over 700,00oz Gold equivalent. 14% of that is in Cobalt and the rest is Gold. It was a seminal moment. Our aspiration was to get to 1Moz, and we didn't quite get there. We did in many respects internally, but the conservatism of an independent resource takes off 100,000oz if it doesn't sit in an open pit, then some conservatism around assumptions of continuity, etc. It was done properly and correctly, and we missed an aspiration, but it doesn't mean it's limited. We will get there in the next few months with more drilling.
Matthew Gordon: Was that an inferred number or indicated?
Michael Hudson: Inferred. We'll be drilling some of the high-grade trends. We put out some very good numbers earlier this year: 20m at 15-20g-type numbers, and they looked like they stacked together as high-grade trends, but we need more drilling to determine the continuity. We understand the structural geology and the controls, but we've got to prove that to ourselves and the market, so we'll be going back into those areas and drilling. We're also adding, ideally, the high-grade ounces, but shallower ounces because we've started to drill these bodies down deeper and we don't need to go deeper at this stage. We are like bulls in a china shop in terms of the amount of Gold and opportunity, but we've really got to keep that sharp focus on building ounces. We know there's not a lot of time left for this project. We've only been drilling it for 3-years. That's where 95% of the project has been built in the last 3-years, and all the drilling has gone in that time frame. We figure that we've got this year and next year.
Matthew Gordon: Why do you say that you have not got a lot of time left? Do you think people expected more from this?
Michael Hudson: We've got a mining engineer working on the project and we think that in a modern society where permitting is always long and riskier, that we should be permitting this earlier rather than spending AUD$100M exploring it and producing 325Moz. No geologist has looked at our data and said that this system can't get to that. We've explored 5% of our area, everything's open, there's Gold everywhere in the earlier-stage drilling data. We're not going to get there with this project in 1-2-years, it's going to take a number of years to do that because there are a few limitations around this project. It is winter drilling, so for the most part, we can only drill in winter. This new discovery that you hinted at is year-round drilling - that's a key point. We're looking at permitting underground declines to drill these things out to indicate it and then measure it. At some point we will put a line in the sand when we have a very economic project. You can make a lot of assumptions around the inferred resource, it is too small, but if we can double it, put a number on the table, then we've got a project that works back-of-the-envelope economically by using a forward-looking statement. I know that I'll get pulled up if I go too much down that path, but we've done the internal studies and we know where the ounces are, more or less. If we can double the ounces that are shallower at the high-grade parts of the system and start permitting towards mining, it will always get bigger, but de-risking it via a permitting process is more valid earlier than later. That's what we're doing.
We've started an EIA process. That's a couple of years for the first pass in Finland, that's essentially a socialisation with all stakeholders: this is what it could look like. This is the impact it's going to have both positively and negatively and how they feel about it. At the end of that process, which is another 2-years drilling, we will have to make a decision whether we put a line in the sand and start to engineer a project and permit that engineered project, or we continue to make it bigger.
Matthew Gordon: You mentioned winter drilling. It is something that seems peculiar to Finland. Could you explain what that is and if that hinders your ability to actually develop a project?
Michael Hudson: No, not from a development point of view. It's to do with timing. There are always barriers to development, that's not an absolute. Building projects is tough and if it was so easy, everybody would be doing it. It creates superhighways when everything freezes. Finland is the land of swamps, creeks and lakes, and for the most part, the area where we do winter drilling is just soggy. We're also permitted in those areas in some cases, there is not always an overlap with soggy areas. But we're permitted only to drill during winter because we'll cut up the ground. It is in the Natura areas. They're 20% of Europe biodiversity program and you've really got to be on top of your game. That's why we're talking about going under with a decline to drill it out all year round. You'd have to fly rigs in from 50m with a helicopter to get into some of these areas because they're almost impossible to access logistically. It's only 13% of our land exploration area, but there is a lot of Gold there.
Sakatti is down the road which, is Anglo-American’s magmatic Nickel-Sulphide deposit. It is in one of these areas. They've just put their EIA and PFS together. The mining engineer who worked on that PFS is now working with us as an aside. Dundee Precious metals may open Krumovgrad, they renamed that project and it's just slipped my mind. This was also in a biodiversity area. It's not a barrier to development, but you've got to be on top of your game. The Dundee Group are also a major shareholder, so they have got their eyes wide open with what we're dealing with here.
That's the detail we've gone into before I provided the overview, but it's a resource that's growing. We've got open-pitable resources at 2.5g/t, but there's around 500,000oz if you were to play a different cut-off grade at about 4.5g/t free Gold. Metallurgically, it's easy. The Cobalt is not an economic part of the project per se. It's a by-product, but it's the government rock. It will be what helps us get this permitted out of Helsinki.
There are a couple of pros to the project: 1 is, and I'm very thankful and humbled by it, is all the support from the local communities, municipalities, the Village associations, the Regional Land Development Council, the majority of MPS in Lapland, which is 1/3 of Finland. It's overwhelmingly supported. We've had a lot of EU money spent on the project over the last couple of years and Finish public money. That's come because it's a new discovery and it's exciting for Finland, but it's also got this battery metal, which brings more attention. A lot of social study work has already been completed, and there's over 300 people locally, just interviewed recently, and 75% is supportive of what we do. That's an unusual event.
The Cobalt makes this a very strategic project for Finland. The Finish State mining company has been granted 450M euros in post-Covid recovery funding to build out the battery supply chain in Finland, of which they're already heavily entrenched.
Matthew Gordon: You stated that Cobalt is not an economic rock in this context, but you quote stuff in Gold equivalent, including the value of the Cobalt. What do you mean by that?
Michael Hudson: That was me short cutting. We do quote the Gold equivalent but always last after quoting the Gold and the Cobalt. I mean that the economic driver of the project is Gold, it's not going to be driven by Cobalt.
Matthew Gordon: Noora Ahola has been selling stock down since August. Does she know something that we need to know?
Michael Hudson: No, Noora's covering a tax bill that that she gained from having RSU's granted to it, which are restricted stock units. She is the key to this project. She is the person who's going to get this built. She's an ex-environmental regulator. She's been promoted to run the company up in Finland. In this Covid world, we need strong local teams. She's been with us for 5-6-years and hasn't sold a share. You'll see her exercising some options as well. I've been in this business actually. I'm going to stick up for insiders selling here. I bought more shares and sold nothing in that 10-years, other than a few options that I've had to cash in. I own more shares today than I have at any point in the history of the company. There is pressure on the inside never to sell, but a lot of people make money all around us, and if you are open and explain it - I asked you to ask me that question -then it shouldn't always be taken as a negative. People who are on relatively modest salaries, because juniors shouldn't pay exorbitant salaries, there should be an opportunity for people to make a few bucks let alone cover a tax liability. I'm very happy to take shareholders who criticise it but I will defend it when it's done for the right reasons because we're good people and we're not here to do the wrong thing. You've got to incentivise the right people, and Noora is the key person in the company.
Matthew Gordon: ‘There's not a lot of time left on this project’. Do you think in the next 2-years this project will be interesting enough for someone to come along and acquire it?
Michael Hudson: Ideally, my vision is that we will have a 1.5-2Moz, and anything can change in exploration, on the upside or downside. We are seeing amazing discoveries in Finland. It's always hard to make a bold statement like that because I'll only be pulled down, but that's the vision. We'll make it look like it, with some big step-out holes that it can go to a lot larger: 3Moz+. We will be going down the permitting side of things. We will have that Natura area ideally excised, and there's a lot happening behind the scenes for that to happen over the next couple of years with the support of the local people, land-use planning and that instrument. That we'll have an NPV of x, y, z, - I'm not going to name an NPV, but I know it could be very substantial. We are on the way to being permitted and people can see a mine being built with a lot of local support, and that's real money.
Matthew Gordon: AUD$10M program for the first half of next year; do you feel that that's going to give the market the excitement that it needs to start paying attention to you?
Michael Hudson: I hope so. Please send this interview out to as many people as possible because that's all part of this story. It's a fair question. The only way that this project will work is by having very successful drill results. I have noticed around this project that after 3-years, people bank-in the good results. More good results are not necessarily the only thing that changes in people's mind, and that's very frustrating as you're building out a project. You have to find the right people to partner with who will support the stock. It's a very niche business when you start doing this. There were half a dozen institutions who supported us and who essentially raised 80% of that. That was due to relationships for the most part. It will be at the drill rig where this succeeds or stays where it is.
I've got to work out how to unlock this latent value that always seems to be in our company in many respects, and a lot of people think that by separating Victoria, it would be worth as much as Mawson. Whether that's true or not is for people to reflect on. There's an opportunity to do that. Victoria needs another discovery to keep the enthusiasm going. That location is within a boom and the next flavour of the month will be elsewhere. I genuinely believe in the opportunity at Victoria. It is genuinely something that slipped through for 100-years, and these systems have developed at high grade for the old-timers who were mining 150-years ago.
Going back to Finland, will more positive drill results create the excitement to give us the value? I bloody hope so. Generally, everything returns to the norm, let's see how we go, but a lot rides on this drill program to meet where I'm painting the vision.
Matthew Gordon: There are no concerns elsewhere in the project that we need to be looking at. We can just focus on the drill results.
Michael Hudson: We just have to guess mother nature! The rocks are the easiest part of the business in many respects these days, everything else seems to be a lot harder. You're right then in that respect: we are fully funded and fully permitted, and that's not always been the case for us. In a bull market, you gain the multiples against your peers if you're making the discoveries and advancing with gusto in that bull market and you don't want delays, and we've been through that years ago, but we can see many years ahead of us without those issues.
Matthew Gordon: I'm excited for you. I think it could be a really good year, possibly a turning point for Mawson Resources.
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