On the face of things, this looks quite conventional. It all hinges on bringing a previously producing gold mine into production. The current 5-year life-of-mine will need extending imminently, otherwise, investors are unlikely to show interest. Glenn is confident this can be achieved, and he is also cheery regarding the abundance of historical, high-grade data at his disposal. The company also has an old processing plant which can be recommissioned for c.$10M, which adds some value to this small story.
It's a gold play with a market cap of c.15M. Investors are going to have to weigh up Minnova stock VS the ubiquitous gold juniors that also present compelling investment propositions. This model of restarting production at a mine previously shut down in a depressed gold bear environment has worked before but needs the fundamentals to stack up and the money to it. Will it work again?
Matthew Gordon: Just give us that one-minute overview of what Minnova is.
Gorden Glenn: Minnova is an emerging Gold producer. We are a venture-listed company: MCI.V, emerging Gold producer focussed on restarting the past-producing PL Mine, briefly operating in 1989. We acquired the project in 2011 and have been diligently, steadily progressing the project through the various stages of technical milestones, NI43.101 compliant reports and related programs to get it to the point where we can restart it. We are advancing the project, completing the technical milestones. We completed a positive Feasibility Study in 2017. It has relatively small mine life based on a reserve base of about 260,000oz at 7g of a decent grade.
We didn’t go for size initially; we went for a time to restart. Smaller reserve base, we have doubled that in resources, about 700,000oz in the global resource base. The plan is to get it up and running in a logical way and continue to explore and expand based on cashflow.
Matthew Gordon: Was that the business plan?
Gorden Glenn: You talk to different investors; some are focussed on cashflow, time to action, some are focusing on what’s the exploration upside? We have both. I don’t mean to confuse people; as much as we are a producer with a permitted, very advanced, low CAPEX project, in a tier-one district; Central Manitoba, Canada, we are also an exploration company. There has been very little work done of our permitted lease in 40 years. We are evolving, I’d say at light speed, based on the calls I’m having with my crew, the structural interpretations of the deposit and controls on Gold mineralisation. There is lots of exploration upside, so it’s a balancing act to where do my investors, shareholders, where do they want me to focus? I’m very close to them, I talk to them regularly. If they want to go to production, we work for production. If they want to strictly drill and explore, we go that way. Both have costs and pros and cons associated with them, it’s really just managing the opportunities for both, good opportunities.
Matthew Gordon: What data have you got and what do you need to do, having just completed your Feasibility Study?
Gorden Glenn: The mine was operating in 1988. There is about 7km of underground development already on it that, quite frankly, was in the wrong position. There is a 1000-ton p/day mill that is in very good repair. All that information, historical drilling, obviously, our drilling to further de-risk and define the reserves and resources that exist on the project, all that was fed into the Feasibility Study. That was done at USD$1,250 Gold. $0.77c a dollar or $1.30 to the USD$. That all fed into a positive study. But the market wasn’t there. I’m very aligned with my shareholders and we are obviously cognisant of these things, looking at the optimal time to develop the project, it wasn’t at USD$1,250, $1,300 Gold, we didn’t push too hard. We let the project mature, let the market mature. We all had a view, the shareholders and board, the Gold price was going to be higher at some point in the future. We were really focussed on the option value of our project at higher Gold prices, so the mathematical calculations of mine model and NPV, IRR, also what’s the exploration potential associated with a developed Gold mine and an operating mine?
We had tremendous leverage and upside to both developments, and at these prices, exploration.
Matthew Gordon: You are talking in the Feasibility Study about a 5-year life of mine (LOM) which would normally terrify a lot of people.
Gorden Glenn: We know that the mine’s challenges at the time were more to do with the scale of operation that they envisioned. Quite frankly, that 1000t p/day mill that they built was too big for the mine that they developed. In essence, they over-capitalised the surface structure and they under-capitalised the underground mine. They didn’t have enough mine development to feed that mill. They tried to proceed to operate at that level but put tons over the grade and didn’t deliver the grade to make the project economics for the mill.
We see this in our industry often when people overpromote and underdeliver. It is management decision errors at the end of the day. Our focus is on detailed infill drilling, better geological milling and controls to develop a compliant NI43 101 reserve and resource.
We independently calculated a Feasibility Study with some top-notch, very experienced mining engineers that understand these types of deposits; narrow-vein, shallow-dipping, not an unusual circumstance for a deposit.
The grades are good. The infrastructure is excellent. The location is excellent. We have many of the positive attributes that I would look for and you would look for as an investor, to tick the boxes. We have everything there. Do we have a scale? Not quite yet, but we do more drilling and exploration, we will get there. Our past press releases have highlighted new discoveries, good grades, good mineralisation, wide open to exploration. As I said, in 40 years, they really haven’t stepped off the mining lease to explore the 10-odd km of prospective geological formations and structural domains.
Matthew Gordon: If I go to USD$1,700, that goes to over CAD$147M. The numbers are there if you are able to deliver and get into production.
Gorden Glenn: Significant infrastructure on site. It is really what makes the project’s capital so low; USD$35M to restart a mine in Canada – no – you don’t see numbers like that. That’s because of the mill, the location and existing infrastructure.
The underground mine development is no magic; it is drill blast rock, 4m around, we can calculate out most of the mining contractors that I deal with and am in talks with. They can map this out in great detail and that number is there. If I break it down to USD$35M, that will give you a sense of how we go from here to there in a relatively short period of time.
USD$35M breaks down: $15M for the mine development. Properly capitalising the underground so we have enough slopes developed, producing, being pace backfilled wherever the case may be.
$10M for mill refurbishment. That infrastructure that you see behind me, again, it is in excellent repair. The mill refurbishment is more to do with the electrical. The mill was vandalised in the ‘90s, mostly stealing wire out of the wire racks to sell it to whatever, for Copper. We have to replace all that. We have to modernise certain things, install a new gravity circuit, new components within the mill. It’s no magic; it’s a very plain, vanilla metallurgy. Very typical of Canadian Archean Gold deposits. It is projected recoveries plus.
When the mill operated, the mill operated pretty well. It was milling below head-grade ores and getting between 80 to 90% recovery, they got higher recoveries when they had higher grades. So, very simple mine milling process.
Then there’s another CAD$5M for surface infrastructure, roughly that’s about USD$30M. Then about $5 or $6M in owners’ costs, contingency, first bills, all the usual stuff. So $35M, it’s not big stuff.
The other important thing to remember about our project is that we are permitted; we can literally be in production tomorrow, had the capital and investment already been done, we would already be in production. 12-months plus timeline to production. There are not too many projects out there that can achieve a realistic timeline to production that is that short, with that little capital and still have tremendous exploration upside.
Matthew Gordon: You have got some data, you have done some work, what do you mean by a potential to increase Reserve grade?
Gorden Glenn: With many of these high-grade deposits, you get a nugget effect. During the original Feasibility Study in 1997, Lakefield did the metallurgy, SGS today. They estimated a certain grade and a certain recovery, and they slid it out in terms of gravity recovery, which could have been up to 60-70%. Total recover of 90%. The vast majority id free gold coming out of a gravity circuit. When the mill was operating, they only got about 40% and they struggled with understanding their nugget effect, their grime size, to optimise the liberation of free Gold. When we were doing our infill drilling through the Feasibility Study, what we noticed was that the geologists would sometimes recognise visible Golden core or they would recognise very prospective mineralogy or see pyrite, pyrite paratype. This inter-drill assay is going to grade very well, and they were coming back lower than expected. Eventually, we twigged and said, just a second here, what are we missing? We looked at total metallic stream-fire assay, which is a much more detailed, much more focussed on consuming the entire assay, and splitting that assay to capture all the Gold in the sample. Not just a 30g cut of what cut be 2000g total weight of an assay.
We identified over 60% of those samples that could be representative of across the deposit strike and across the deposit dip, we were seeing positive variance in grade. It cuts both ways: we had high-grade samples reduced and lower-grade samples increased, but overall, we saw initially a 20% positive variance. As we did more data, we are sitting at about 12 to 13% positive variance. It just tells us that there is the potential that the reserve and resource grade have been underestimated because they mostly relied on traditional FIRE assay methodologies.
Going forward, we do total metallic screenings so we can try to eliminate the uncertainty of that. But at the end of the day it comes down to, you have to get on the ore, develop stopes and test the ore for the actual grade you get at the stope.
Matthew Gordon: How meaningful is it to you in terms of incremental margin?
Gorden Glenn: If you go to the original Feasibility Study, if you go to the sensitivity table, a 10% increase in the grade of the deposit is almost equivalent to a 10% increase in gold price. The impact on the project’s NPV and a commensurate increase in Gold grade have a big impact on the project.
Again, the data is incomplete on that. I can look at the Gold price and do a simple, updated Gold price-sensitivity leverage. As you pointed out earlier, I’ll just use USD$2000 Gold as it is a simple number for everybody in the Gold space to target, the project has an NPV-5 of over $200M and higher. And an IRR of over 200%. That’s because of low CAPEX, short timeline to production,
The grades are the grades. No change to any other parameter of the Feasibility Study.
If we had been able to demonstrate a higher reserve grade, then that number will equally bump. Those are the numbers just adjusting the Feasibility Study. If we are able to stand upon our resource, which is not unreasonable, demonstrate exploration potential, convert existing resources into the mine plan, adding 1 year to the mine plan can add NPV of $30M to $40M. I’m pulling numbers there that you can calculate from the Feasibility Study. It’s about $1/share because our leverage is not only to the price of Gold going up or potentially higher Gold grades, it’s also that we have a low share count that has been managed prudently over the last few years to offer shareholders leverage per share, ounces per share, NAV per share-type higher numbers.
I think we have, again, back to criteria investors look at to evaluate a project, I think we can tick many boxes with few exceptions. The ones we haven’t ticked yet, if I had more money to spend, I’d be able to tick them.
Matthew Gordon: When do you know enough about the screening project of the assays to say, here is the process by which we will economically extract this incremental Gold?
Gorden Glenn: Starting the mill has nothing to do with certain forecasts or an anticipated higher grade. Our metallurgy is fairly straight forward, plain vanilla. We could restart the mill as it stands right now, working with these grades right now and generate a very attractive cashflow in return. The opportunities to us at the project level are really about exploration, resource expansion and right now, we are running that 1000 t/day mill from our Feasibility Study at 6000 t/day. We are trying to right-size our mill throughput for our mine. As we develop the mine and gain experienced mining, we should be able to ramp up the organic growth from our existing resource base, basically grow into that mill and then we have a satellite deposit 8km away called NKOMAS, which right now is about 60,000oz.
We will start drilling that this winter then works it into a future Feasibility Study. I can see our production plan over a 5-year period being a little bit less than 50,000oz, going up to 60,000 to 65,000oz with no significant incremental CAPEX, really just expanding and converting what we know.
Matthew Gordon: What’s to stop this from being just another mining exercise? Whatever money is made from production just gets ploughed back into exploration?
Gorden Glenn: That would suck and that is not the plan. I crank my model. I flex my Feasibility model once a week, especially in the last quarter as Gold prices marched up USD$1,500, $1,600, $1,700 to where we are today, the cusp of $2000.
This is all something that could deduce from the public documentation, Feasibility Study. Free cashflow in Y1 at USD$1,950 and current exchange rates would be well over CAD$60M. Pay back – less than half the year.
In Y2, well over CAD$70M, Y3, over CAD$60M. It is, quite frankly, a bit of a cash cow.
We will definitely be allocating capital to exploration and resource expansion. We don’t need mill expansion capacity; we need to demonstrate exploration then regional exploration. I know this from past experience in past lives, I want to attract institutional investors, ultimately an M&A from a bigger player that says, hey Gorden, that’s an interesting project 50,000oz p/a doesn’t really do it for us, what have you got in your back pocket? Do you have 100,000? Do you have 150,000? I’m talking a little casually here, but the point is, if we explore from our cashflow, I think we have a good chance of demonstrating that scalable upside, and that is at the project level.
One of the things I didn’t really highlight for you here, Matt, because we are really talking about the postage stamp of the property, in the context of the Flin Flon Snow Lake Greenstone belt, a belt that has been developed over 100 years, still mining continuously over 100 years. Three Gold mining deposits. It has lacked competition. It has lacked other junior companies being fully funded and active and competitive in the belt. It was really dominated by one company: Hudson Bay Mining and Smelting in the day, what we know as Hud Bay the public company today, they would have been looking for a base metal project to feed a Copper smelter and a Zinc refinery. Totally different exploration approach. We believe there are significant structurally controlled Gold deposits in the belt that just haven’t been identified because there wasn’t a focus or ownership or active and prospecting junior community.
The PL deposit and the work we have done on the project and getting very specific, detailed, looking at new structural interpretation has really afforded us an edge on what I think are controlling structural domains in the belt. And one of the medium to long-term targets for the company is really to expand our property position, get a big enough footprint to really attract institutional investors, more intermediate and senior companies to the camp to either look at us for what we have or just to become in the camp. Any success in the camp on the Gold side just enhances our project and our star.
Matthew Gordon: How do investors make money?
Gorden Glenn: I think we are massively undervalued relative to the typical criteria that anyone could, I know you hear that all the time, but it’s simple: Feasibility Stage project, go and grab your peer group of similar FS, permitted, shovel-ready, basically pending finance projects and you will see different multiples: NAV, resource, ounces, discount to NAV, to NPV – pick your number, our number is low. For whatever reason? There is no good reason. Marketing, marketing, marketing. That’s why I’m talking to you; you’re going to make it all better.
The issue with the valuation here is pretty significant in a rising Gold environment. What we have in our back pocket is exploration upside. We are releasing, we have had a couple of press releases on that. We have our leverage to the Gold price based on the current Gold price environment. All these things drive value, it’s all about attracting eyeballs to our development strategy and timeline to production.
I think people can make money on an increasing, obviously, Minnova share price is increasing, to some relatively higher valuation. I’m not saying we are going to exactly reach the peer group we are in, we are still a relatively small forecast producer, but I think we can get much higher than we are. Then if we have some further exploration success, develop some new targets, which we are doing, that adds some speculative blue sky to the story. We are pretty excited about it.
Matthew Gordon: Is it a re-evaluation by the market, by institutions on the basis of exploration success? What’s the plan?
Gorden Glenn: I have 2 plans and they don’t compete; they augment one another for the different shareholder factions that are there. We are both an emerging Gold producer with a short timeline to production and low CAPEX and we are an exploration company in the shadow of our mine-development project, off the mining lease. Both of those should be attractive to any investor. You just need to decide which way you want to play it. Do you want to play it as short-term Gold production and a rerating and cashflow that’s going to be deployed to further expand and explore the property in general? Or do you just want us to spend money on exploration and get to 1Moz? Personally, I am an NPV guy. I am a risk driven guy, I’m a risk-averse guy. I see a project that is feasible, permitted, very short timeline to production. I want to get to cashflow, but I listen to my shareholders, I listen to all investors; they want to see the blue sky on top of that. We are working on that right now.
One of the things, that may be important to some of the investors out there, we don’t spend a lot of money to get where we want to be, relatively speaking. As you know, there are exploration companies out there, and some of them have multiples of our market capitalisation and they don’t really have the assets we have, or they are maybe half our size, and again, they don’t have the assets we have. It’s trying to get people to really think about what is less risky, what is a higher reward?
If I am able to put in place a project finance structure in the US, USD$20M+ range, then my requirements for equity are significantly less than virtually anybody else out there to get to production. I’m not going to dilute the crap out of it for my shareholders. I’m going to try to prudently, strategically, quickly and then have that cash to explore, expand and develop, and then maybe there is a dividend out there in the future, which is crazy for a little junior company to say, but the project is a cash cow at these prices.
Matthew Gordon: What is it going to cost you?
Gorden Glenn: Any project finance facility comes with a contingent equity component. Do we have enough market capitalisation at this point to do this? Realistically, no. Can I have those conversations with the project finance private equity groups? It’s been going on for a very long time, I typically don’t take a pen to a meeting, i.e. I’m not going to sign something right away unless I can deliver on the contingent equity contribution. But there are more groups out there than ever before. They are all looking for access to near-term tier-one jurisdiction, reasonable gold exposure with projects that are robust. I think our project falls into the robust category at these current Gold prices. We are having those conversations with multiple parties. We will see where we get to in the next couple of weeks or months. In the meantime, I have lots of technical programs on the go to deliver news to the market. I have exploration upside. The reasonableness of this project is a very attractive prospect to investors. I would hope that is going to resonate with investors and I’ll see more buying in the stock.
We’ve already seen that in the last couple of weeks and months as we have bee able to get out there and talk the story and get new eyeballs on the story. I have a US investor taking a serious look at the project. I have overseas investors looking at it, investing in the project. It is coming together now. The project has been the same for a couple of years, we are expanding with exploration. We are just poised and ready to go. We have prepared ourselves at the capital structure level for today’s environment. I just need to see the share price go up a little higher than I think I can finalise some project finance discussions.
Again, USD$20M, USD$25M. The project pays back quickly, it’s actually pretty attractive.
Matthew Gordon: How much money have you put in?
Gorden Glenn: At the end of this quarter, I’ll probably own 10% of this company direct. I haven’t paid myself very regularly, if at all. I convert to equity at prices that are higher than your typical junior mining company CEO does. I work with my shareholders, I’m very respectful towards them, I have good relations with them. It’s a two-way conversation, I tell them the plans, goals, and then I deliver on those. They give me feedback. If they want to see more exploration, I manage the programs accordingly. If they want me to scale back, I scale back. It’s usually me saying scale back, the market conditions aren’t good, and we aren’t getting value for the asset. It’s really about feeding a line with your shareholders, respecting them, and quite frankly, trying to fight hard for valuations that are reasonable and fair, both to an existing shareholder, if we are talking about equity financing, I want a valuation that is fair and respectful to my current shareholders and the new shareholders. I think I can meet both those obligations and continue to grow and offer more value in the future.
Matthew Gordon: Are you taking all of your salaries as equity?
Gorden Glenn: I am in the process of converting a large amount of money into, I haven’t paid myself in years, and I have no issues with that. It’s really about to call it ‘sweat-equity’, which is what it is, there’s been a lot of sweat, and getting the project to be what it needs to be. Not dropping the ball, and if I do drop the ball, I catch it very quickly and get it right back up in the air.
We have managed the project through all the logical milestones, we are in the right environment, we are perfectly able to move it forward, and in the next 3 to 6 months, we will see a lot of catalysts for that. Whether that be on the exploration upside or the mine development side.
Matthew Gordon: Who are these shareholders that are telling you what they want you to do?
Gorden Glenn: I call them ‘big-book retail’ guys. I have guys in Camcor, the usual guys on the street. I won’t name names, for obvious reasons, but if I did name names off the record, everybody’s head would nod and they’d go, yes, they know their stuff, they know what they are doing. They are there for a reason. Again, I don’t have the broadest shareholder base. It is actually pretty concentrated, but they are all solid and many of the shareholders have been involved in the company before I did, which is over 8-years ago. They have been steadfast in the project for many of the same reasons that I am here because the project does tick the boxes. It may be small but small can be beautiful. Small means I have a fewer dollar amount to raise. I don’t have the same challenges as a big project. I’d rather get the cashflow quickly then to grow at that point rather than dilute and grow, I’d rather get to the production profile and grow. Then maybe there is some M&A beyond that.
Matthew Gordon: Are you frustrated that the conversations haven’t led to financing before now?
Gorden Glenn: No. I’m frustrated with my valuation but that’s up to me to get the workout. I do need a receptive audience. I need ears like yours. I need your distribution potential, which is amazing. I need people to understand what the project is, and some people will like it, some won’t. It’s too small for some people, it’s okay for others...
I have told you, in the past I was an analyst, I covered everything A-Z, top to bottom. When I was a banker at a bank-owned firm, the focus was always big. Big doesn’t always work out. Big creates scope and scale problems that many investors don’t fully appreciate. It also creates the risk that a management team has perhaps over-promised and can’t deliver on that promise.
This project, in my humble opinion, is scaled to minimise the risks. In my career, if you don’t focus on the risks, you are going to be bitten by them. We have focussed on all the risks at the PL deposit, which is mine-ability, continuity of resource, does it hang together? The grade which is consistent over 5 resource calculations over the last 8-years and that reconciles, actually, with the resource calculations going back 30-years.
We are trying to de-risk the project, mitigate the potential risks and overcome them. I didn’t even talk about the prospects for this project for new things. The incorporation of new technology, old technology, old Gold profile mining equipment. Battery electric mining equipment, things that will enable us to make the project small and efficient.
We are in a region, I wanted to talk to you a little about biomass power generating. It could potentially become a green energy producer and be a neutral carbon mine. We are in a jurisdiction that doesn’t have a lot of employment, it doesn’t have a lot of industry going on. We are a little bit further north than Hud Bay Flin Flon, Manitoba, we are not that far north, but you still have limited economic development initiatives. One of our initiatives up there, as part of our CSR program, First Nations, is really working with the First Nations to other job and economic opportunities were we a partner with them. I created a program called, Minnova Renewable Energy, which is the first step in a plan to have First Nations partner, and we develop a biomass power generating station. That biomass power generating station would sell electron to the PL Mine and mill – sounds like a pretty good deal. We would create more jobs than just the mine, and unlike the mine, which right now we have a 5-year Feasibility Study on, I think it would go for 10+, I hope. A biomass power generator can go for 100 years. We are dealing with the biomass up there, it’s got a very long growth cycle, like 100 years, these plants are feasible in Norway, Sweden, Finland, all these northern latitudes, they would be perfectly feasible here. We have a ready, willing and able workforce that is local communities and First Nations. It is all the ways that we think about doing good for the communities, good for the environment.
Company Page: http://www.minnovacorp.ca/
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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 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.