This team thinks they have the perfect asset for a major mining operation to extract. Regulus has a market cap of $120M and while the share price rose in March to $1.92 after promising drill results (34 holes with 820 meters of a 0.77% copper equivalent), they've now receded down to around $1.36. Regulus Resources is an excellent example of a copper/gold company in the evaluation period of its life cycle. There is clear potential exemplified by the level of investment by management in Regulus projects, the experience and track record of the management team, and their strong list of assets. However, Regulus Resources has work to do before investors can think about scheduling an extravagant party with no expenses spared upon the sale of their shares. While no hitches are expected, Regulus Resources is still waiting for a permit to come through for their asset in the North of the property, which isn't the fastest process in Peru. Liquidity of their stock is an issue: a symptom of the company's position in its life cycle but also because the stock is so closely held by a just few insiders, c.70%. Regulus Resources is conscious of this as they enter their next round of fundraising. Capital is available but management must decide what type of investor they want to come in at this stage. Regulus Resources needs to convince prospective retail investors their copper/gold project has what it takes. This can take a significant amount of time and not all investors are willing to play the long game. Regulus Resources is in a heavy drilling phase that has only just begun and there is lots of work left to do and funds to raise. The management's track record suggests that they are capable of creating real value for shareholders by developing exploration assets. While Regulus Resources looks like a safe, stable investment, with solid if unspectacular long term prospects, it looks unlikely to be making shareholders money anytime soon; that will require them reaching a point where larger mining operators come in and bring it through to production. For the patient investor, money is certainly there to be made, but just how long is the long-term? What did you make of John Black? Let us know in the comments below. We Discuss:
Click here to watch the interview.
Matthew Gordon: We spoke to you back in the beginning of May. Can you give us a one-minute summary for people new to the story?
John Black: We have acompany that we're a group of seasoned explorersand we specialize in identifying large copper or copper goldprojects at a relatively early stage, but at a stage when it's clear that itwill be a fairly strong project. We capture those projects, we drill those out,and then ideally, we deliver a large, economically robust resource to themarket at a time when major companies are looking to acquire these typeprojects.
MatthewGordon: You have project’s in Peru. Peru’s a well-known mining region and district.You’re surrounded by some big name companies. How have things been since wespoke in May.
John Black: When wespoke in May, we had just put out first resource estimate on the project. So, betweenindicated and inferred resources, we announced over a 500Mt resource ofattractive copper gold grades on the project. And we were just entering intoour Phase 2 drill program. Our Phase 2 programs designed to be about 25,000m.We're about halfway through that program and we've been announcing some veryeye-catching drill results from that drill program.
MatthewGordon: You're waiting for a permit to come through. Any reason to believe thatthat won't come through?
John Black: No. Thegood thing about Peru is it's a mining country. It's a fairly standard process.It's a very transparent process in the sense that there's no jumping the queueor anything like that. The frustration that many of us have with Peru is thatsometimes it's a slow process and you don't know exactly when it comes out. Butours is fairly straightforward. And it’s just a wait now. We anticipate thatwe'll have the permit by the end of the year.
MatthewGordon: And no challenges or issues from that neighbour?
John Black: No, not atall. No. The fact that we're next door actually helps us. We're more of abrownfield situation and we're in Northern Peru, we’re in Cajamarca. We're inan area that is a mining community in the area. And we don't have indigenouscommunity issues or anything like that. We have good support from the localcommunities on moving forward. So, it's just a just a process. The process nowinvolves a number of other ministries, not simply just mining. You have tocheck off with other interests in the country. And that's good for us. Thatmeans that it confirms that we have broad support to go forward with what we'redoing.
Matthew Gordon: When we spoke in May, your share price was about $1.45. It's about $1.30 at the moment. But you've had this peak, had a bit of a run up in August, September. Can you tell us why that was?
John Black: What we’reseeing and is an interesting pattern in our space right now as we drill theproject out. We're drilling lengthy holes into a fairly large deposit. And so,we have drill results coming out about every two months. And we've beenannouncing some rather spectacular results. Results that came out in Septemberincluded hole 34 with 820m with a 0.77% copper equivalent. Eye-catching resultson that. That catches the market's interest. We tend to see a run up in price. Butwe're fighting headwinds right now with trade tariffs affecting copper priceand affecting sentiment in the copper space. And so, we tend to see a patternwhere we have good news results in a run up and then we drift back off until weget the next good news coming out. We believe the results we've been putting outwarrant more steady, positive results that accumulate over time on this. But ourtrading pattern has resulted in kind of flat for the year.
MatthewGordon: Yeah, it's kind of flat overall. I was just interested in that peakbecause you went up to circa 175, then back down at 130. It dropped offrapidly. And you're putting that down to trade tariffs and commodity price as aresult of the trade times. Right? But are you at that kind of funny stage interms of your drilling. You've got about four rigs, is that right, in theground at the moment?
John Black: We'recurrently drilling with four rigs. Yeah.
MatthewGordon: OK so that's giving you meaningful data, that you're that kind of funnystage where you’re waiting to tell people what it is that you think you gotthere in the ground and how do you sustain, how do you consistently convey whatit is that you're trying to do or trying to be to enable the share price toactually start going upwards?
John Black: Well, the good thing is this is not the first time we've done this says as a company. Our business model is to get on a project like this and drill it out. We have good access to capital, we have good supporters, good shareholders on this. And so, we focus on steadily drilling the deposit out, demonstrating the size of it and de-risking it. It's kind of a funny market that we're in right now is there's a lot of positive sentiment for copper in particular. And when you talk to major mining companies, they're all trying to position themselves to have large copper deposits. There's a general consensus that there will be a looming shortage of copper as we see further electrification of vehicles. And quite frankly, we're not putting too many new mines on in production is an industry right now. However, in the short term, there's uncertainty. I mentioned the trade tariffs. It's partially centred around that, maybe global economy as well on this. And so, I've described it as the most positive yet, cash poor market that I've seen right now, where everybody seems to be in agreement that copper is a great place to be, but everybody's waiting for it to happen. And so, everybody's watching. They're taking a look, but they're afraid to be the first movers on this. We see this commonly in the market when we're on a market, bottom or lower spot on this. Nobody wants to go first. Everybody wants to wait. Everybody agrees it's a good idea, but they need to see those breakouts and sustained breakouts. Quite frankly, it'll be mostly in copper price for us if we see, for example, trade tariffs resolved between the US and China or a general more positive feeling on global growth. We will most likely see the copper price move and then names like us will be in a very good position because we're working on a large deposit, one that's very attractive for people to acquire. And so, we kind of look one to two years out is where we want to be, and it'd be nice if our share price was steadily climbing and that, but we know we're building the base so that when the positive sentiment comes back, then we'll probably see a rather sharp uptick for names like ourselves and many others.
Matthew Gordon: So, what's the thinking for you? I mean, how do you deal with these cycles? OK so you’re a bulk play. You've got some credits with gold, silver. So that's kind of appealing. But it's very it's a low-grade belt play here. Do your shareholders like, Route One I think one thing was someone who was on board, do they say we'll continue to follow our money? We believe in the thesis, we believe in this management teams’ ability to deliver this project. Will they continue to fund you or are they now sitting back and also waiting to see what the market does?
John Black: No. Route One’s, a very steady supporter forus. They've actually encouraged us to go out and take advantage of these lowspots in the market, both to acquire projects. Quite frankly, the Anta Kori projectwe had, we acquired it in 2014 when the market was even a more difficultsituation right now. So, we like these soft spots in the market. It's a goodtime to acquire projects. It's a good time to work on them. It's easier to getdrill rigs, prices are cheaper. Good qualified people are available. So, theimportant thing is to have access to capital and be able to work steadily in theseperiods where the market's struggling a little bit more. Then we're building upthe resource, we're building up the project that we want to have when themarket hits that boom. And then the thing about our business is it's verycyclical when we have these low spots, we always see the high spots come backon it. So, it always seems a little scary while you're waiting for them. Yes.But we've been through this a few times before. And that's the important thing,is to work steadily, focus on project quality. You want to have a project thatstands out. We believe we have that with Anta Kori. You mentioned a key pointis it's not only copper on this project as a strong precious metal’s componentto very significant gold content. So, we kind of have some protection on metalprices. Copper is down a little bit now, but gold's up a little bit, too.
Matthew Gordon: Where you were in 2014 and having Route One encourage you to buy something in 2014 is different from today. You didn't have assets then. You have assets now. The market, the cycle is at a low point now. What is Route One telling you to do today? Because they're not saying go out and buy more projects, are they?
John Black: Well, ingeneral, and it's not just Route One, we have a number of backers thatencourage us to do what we do, as well as our own personal philosophy on thisis it right now is Regulus we're on to a very, very good project. We'verecently spun out a new company called Aldebaran on a very encouraging coppergold project in Argentina as well. And so, we're not aggressively seeking newprojects right now. But you always keep your eyes open. Projects like what wehave with Anta Kori and Regulus and what we have with Altar and Aldebaran arevery hard to find. It's an industry we've been able to, as juniors, put ourhands on a number of these over the last 15 years or so, reveal the fullpotential for them and sell them to majors. It's been a very good businessmodel for many of us to do. We were very successful in our first company Antareswhen we discovered the ****deposit and sold out to First Quantum. We're back on another one that we thinkwe can do again. But it's harder to find those right now. And so, groups likeRoute One or others that back up are always encouraging us to keep our eye outif we see another one of these rare, rare opportunities. We'd certainly triedto put our hands on it, but we're, as you mentioned an interesting point, rightnow we’re onto a very good one with Anta Kori and Regulus. And so, we're reallyin the stage now where we're focusing on drilling it out, showing the fullsize, de-risking the project, having it ready so that when the market entersinto a stronger phase than it's in right now, interestingly enough, that's whenthe major companies acquire projects is when copper prices are high. It'sbecause they're cashed up and they're looking to grow.
Matthew Gordon: I understand that. So that's the M&A components. And then towards the end that you think answered the question, I was going to ask. So, what have you as a board or a management team decided to focus on now in this low cycle? And have you got the cash to be able to do that?
John Black: Yes.Essentially, in these low cycles, capture a good project, which we have and nowfocus on drilling it out, showing the full size, de-risking it, having itprepared to be ready when the market comes back more strongly than it is rightnow. And we see the roots of that. We see the major companies clearlyindicating they want to have very good projects and they're looking. We're notquite into a strong M&A phase. Capital right now, we have we have good,strong supporters and for good projects we're seeing access to capital is, Iwouldn't call it easy, but it's there for good projects and good teams. And particularlythose with a gold component. There's been a flurry of financings for goldrelated projects recently and we can play. Both aspects of this project asbeing both copper and gold say.
Matthew Gordon: So relatively easy. And I know you're stressing the word relatively. Where would you be getting this money from? You're not yet looking for strategic. You want to maintain control, to prepare, as your word, the company to get the best outcome for your shareholders. Is that fair to say?
John Black: That'sfair to say. Yes, absolutely.
MatthewGordon: So, who are you talking to? Or who will you be talking to with regardsto raising the next round of capital? What type of money are you expecting tobring in? How much? What are you going to do with it?
John Black: Well,there's been an interesting phenomenon really in our space recently. If youlook at most of the major financings that have been done for larger amount ofmoneys for serious drill projects. We've seen a migration away from thetraditional private placement in our space and we've seen an increasing numberof strategic placements, major mining companies, putting money into interestingprojects that they want to monitor, even at a relatively early stage. And insome ways, it's acting as a proxy for their expiration efforts. They'verealized they're not generating sufficient projects themselves. So, they justget a toehold into a group like this. And so that's something we're very awareof and we're constantly in discussions with potential groups to do that. Andthen the other alternative is to do a more traditional private placement, whichhas been difficult for us, partly due to competition from other high risk, highreward opportunities like the cannabis industry or prior to thatcryptocurrencies. So that's drawn a lot of funding away from us. We're startingto see that come back into the mining space, particularly for gold right now,so right now we really have two principal avenues that we're exploring. One isa strategic placement from a variety of major mining companies or privateequity funds that want to have a toehold into an interesting project like wehave or always with the opportunity to go in a more traditional privateplacement. They have their pros and cons. The strategics are very attractive,but you have to watch out for strings attached. You can't be wed to one companyby simply having them make a minor placement into you.
Matthew Gordon: Right. And with all your experience and your track record, what's that telling you with regards to the amount of money that you think you'll need to have in the kitty to be able to prepare this company for some kind of exit?
John Black: Well, ourbusiness model requires us to do a lot of work on a project. When we acquirethe right project like we have our hands on right now, we're into a heavy drillphase on this as we drill that out and so our burn rate, the amount of fundingthat we need to progress the project is approximately 20-$25MIL Canadian peryear. We're nearing the point where we need to get set up for next year onthis. And so that that would be approximately the amount of money somewherebetween $15-20MIL is what we'd be looking at raising in any variety of mannersbetween now and, say, the end of the year.
MatthewGordon: Right. And then I guess then comes the question again, using yourexperience, you've been there, done it before, is do you think you thenreassess the situation at the end of next drill season and then work out whatyou want to do? Or do you say, well, that's the moment where we're going tohave meaningful conversations to try and monetize this, have a monetary event?
John Black: Really,we're right on this as we've put out our first resource in March, we're in ourPhase 2 drill program. That'll be about 25,000 meters. We anticipate we'llfinish that about the end of Q1 or sometime in the first half of next year,which will allow us to put out an updated resource about mid-2020. At thatpoint, we'll make a decision on whether we put a preliminary economicassessment around that or if we still feel the project is quite open forexpansion we would enter into a Phase 3 drill program. Our strategy really isto demonstrate the full size of the project and identify the best areas of theproject before we enter in to putting economics around it. You really don'twant to start too early on that because you want it to have the best footforward when you put your first look at what the project might look like, thefull potential of the project.
Matthew Gordon: And where do you believe that shareholders get the most value? At what stage? Obviously, the PEA, Phase 3 I think you're calling it, has some benefits, but PEA’S you know, I think they vary in terms of the numbers, in terms of what they tell you. It's preliminary. Do you think that the company will see more of an uplift if it gets into a pre-feasibility stage? Or do you think a PEA is the point you could exit just as meaningfully?
John Black: If we lookat the lifecycle of a junior mining company or really any mining company on this,there are two really notable points when you see a lot of increase in value inprojects. Well, one is between the discovery point and approximately thecompletion of a pre-feasibility study. It’s the drill definition. You're onto agood project. You're revealing the size of it and you're de-risking the projectto confirm that it could be economically developed. There's a very sharpincrease in value in the project at that point. And then there's anotherincrease in the ramp up right before you go into production. But sometimes thatspace between completion of a pre-feasibility study and production is a longperiod of time and it's a risky time for a single asset company like ourselves.And so, our business model is to identify projects as close to that discoverystage as possible. Ideally, we acquire them after the discoveries been made,but maybe not fully realized by the market or the group that is offering it tous. And then we reveal that discovery. That's exactly where we're at right nowin the Anta Kori project. And then typically we notice that up to about apre-feasibility stage, it's a good time for us to be investing money andshowing that. If we're on a very strong project at the time, we complete apre-feasibility and we're in a good market, a robust market with good metalprices, it's highly likely that a major mining company would like to take itfrom us. It seems strange that they let us add that much value to it, but theywant to have certainty it’s there. So, it's not simply it's a large project.They want to have it de-risked and be comfortable with it. So, we typically seeour role as working up to about that pre-feasibility stage. And then ideally,we pass it on to a company that has skill sets to develop the project. We'renot miners. We're good at identifying projects and discovering them, revealingthe full potential on them. But then it's best for us to pass that on and thatresults in an earlier return for our shareholders. So, we like that earlymonetization at about a pre-feasibility stage. A good project and go to a PEA.Sometimes they take a little bit longer. It depends where the market is interms of price and how robust the project.
Matthew Gordon: Right. So, people think to have a view on the price of copper at the moment, looking at chat rooms and forums, people seem confident in the management team’s ability to deliver this. I think the question's always been around timing. That’s their only concern. It’s not a case of if, it’s when, which is good. It doesn't do much for your liquidity, though. So, what do you want to say to new investors or potential new investors looking at this as an investable proposition?
John Black: Yeah. Forsomebody looking at a project, liquidity is an issue that we were quiteconscious of as we go into a round of raising additional funds. So, that willbe a consideration on when we bring in new funding. It's nice to go to onesource, or same shareholders or steady hands that way. But we do realize thatliquidity is important. So sometimes bringing in new investors could beadvantageous to us. So, we'll certainly have that in consideration. But forthose that are looking for a project right now, a good management team that hasdone it before, is a very important way to identify good opportunities in ourspace on this. Our group has successfully completed our business model oncewith Antares, which resulted in a very nice return for our shareholders. Welearned a lot in that process and we believe we're on to a better project nowand a chance to do that again. It does take some patience on these. So, we'llbe building value. We're the type of investment opportunity where youaccumulate when prices are weak like they are right now. And you sit on thatand wait for us to have that monetization event. A lot of values added veryquickly as we approach that point in time when we can monetize the project.
Matthew Gordon: John, look I appreciate the catch up. Sounds like you're sticking to the business model you know. You're very clear. My interpretation is that, you know you’re not miners, you’re not pretending to be minors, not pretending to get into production like some management teams do, even though they've never done it before. You're clear of what that point that you're looking for is and how you're going to get there. I guess what we will like to see is how you fund that and what the cost of that money is. As you say, it’s cheap to come in now, but not necessarily good for existing shareholders. With that dilution. But if it allows you to deliver an exit that like, I guess everyone's going to be happy.
John Black: Well, it’snot like we're rock-bottom prices by any means that right now at all. We'veidentified a project and that shows we have a market cap of about $120MIL rightnow, which shows that we're on to a good project. It's a good intermediatestage with us right now. And the real trick now is to make that next jump up.And we'll do that by continuing to deliver the drill results we've been doingright now. Should that increase in resource, a critical stage to watch for usis that we anticipate we'll have the permits that let us make that next jump tothe north. And by moving to the north, we're have the opportunity to increasethe size of the resource that we're on. But we also anticipate that the qualityof the resource is greater to the north. As we move to the north, we're movinginto an area, the project that has cleaner metallurgy with it and is associatedwith better quality ore, so we think that that's a critical stage for us andthat's a great opportunity for people to get into the company before we makethat jump to the north. Once we're drilling to the north, if we don't deliverthe results, we anticipate that we'll see from there, that's the type of pointwhen we'll see not just a jump, but a sustained jump in the value of the project.
Matthew Gordon: It’s a bit early, but we’re coming up to tax loss season in Canada. That's always a tough one for juniors. Is that going to affect your decision making as to the timing of raising money?
John Black: Tax lossis kind of a funny one. It's always hard to predict. I mean, we are coming upto that time of the year when that's mentioned a lot on this. Keep in mind,many investors are not just in our sector, they're in other sectors as well wherethey may have a lot of tax benefits on this. So, it's kind of hard to tell.Investors have their reasons to be selling. If there are those that want tosell for very good reasons right now. That just creates an opportunity forother people. So, I view the end of the year this way as a great time to lookfor opportunities for good prices in solid projects with good management teamsand to position yourself well for those, in particularly in the copper space.We will see a point in the not too distant future when we see a price increaseand any company on a very good project right then is likely to see asubstantial increase in price. So. it's a great time to patiently positionyourself for one or two years down the road.
Matthew Gordon. Beautiful. Thanks for the summary, John. Appreciate your time. Stay in touch and let us know how things are getting on.
Company page: https://www.regulusresources.com/
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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.