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Matthew Gordon: Hello Chris, how are you?
Chris Bradbrook: Morning.I'm good, thank you and yourself?
Matthew Gordon: Not too bad. Where have you come in from?
Chris Bradbrook: Wherehave I come from? I was coming from Perth. I've been in London since Saturday.
Matthew Gordon: Jet setting life you lead. You're going to tell us a little bit about Superior Gold. Why don't you give us a two-minute elevator pitch on the story just to set things up and we can, perhaps, dive into it.
Chris Bradbrook: Wellwe bought this asset in October 2016. And essentially what we saw, what I saw,was an asset that's been in continuous production for almost 30yrs. So, it'snot like we were showing up and saying, 'we're the smart boys in the room thatknow how to run it'. It obviously was a stable mine. It had been in Barrick fora number of years and they'd sold it to Northern Star, so it had kind of beenburied within a bigger portfolio. The price was right. It was only AUD $40M.The infrastructure to replace would probably cost you about US $2.5Bn intoday's dollars. So, anything you did to grow it, it was all we could be quick,low capital intensity, had a large resource base. It was a sixth or is thesixth largest historic gold producer in Western Australia. So, I saw atremendous asset with great opportunity that basically had been unloved.There’re so many examples where companies have taken an asset like that, andthat's what matters to them, and they work, and they make it into a success. Sothat, fundamentally, was why I like the asset, and a first-world location.
Matthew Gordon: You bought into a producer with existing assets in place. At a price you felt was reasonable.
Chris Bradbrook: Correct.
Matthew Gordon: Yeah, fine. Let's deal with last year first. So, what happened? Almost a year ago today your price is about three times what it is today. There’re a few things that happened, why don't you talk us through that?
Chris Bradbrook: Well,if I may, I'll go back to the year before, first - 2017. So, our first 15mthsof operation, we were putting about US $2M into the bank every month. So, wewere running it as a business, making money. That was the philosophy. That'swhat we wanted to do. And then in 2018, we started hitting a bit of a wall andwe really struggled with the operations. And the grade dropped. We were tryingto figure out what it was. And ultimately what it turned out to be is that theprevious management had been essentially harvesting what Northern Star had leftus, but not replacing it. So, there was no ability once we used up what wasalready planned out to... with flexibility.
Matthew Gordon: This must have been part of the data set which you inherited?
Chris Bradbrook: Yeahit was but, of course, you assume your management are replacing what theymined, but they weren't. So basically, we had to pull everything apart lastyear to figure out what it took to do it. We changed over management. We put inmore technical people.
Matthew Gordon: You've got a new COO.
Chris Bradbrook: Yes.So that, I would say, that was the final piece of the puzzle. Even with thosechanges it still wasn't happening. So, we sent Keith Boyle, who is now our COO,down there for three months. So, I said 'look, tell me what is going on?'
Matthew Gordon: What did you discover?
Chris Bradbrook: Wellfirst question I asked him was 'is it the ore body?' Because if it's the orebody then you're out, game over. He said, 'categorically it is not the orebody'. He said, 'you've got the right people'. He said there's.... you need tobasically focus on a basic operational thing, it is absolutely fixable. And asa result of that, he spent six weeks, three months and he liked what he saw.So, when I offered him the job, he'd done his due diligence and said, 'Yeah Iwant the job', so I think that's really a testament to the asset. And the dealis he's based out of Toronto but for the next six months he's living on site.He's not coming home until he's got it back on the track.
Matthew Gordon: So, let's come on to him specifically in a minute and get back to what he discovered and what he thinks he sees in this. He's looked at the operations. Your costs are quite high, the AISC is quite high. Certainly the 2019 numbers look quite high. I mean, is he looking at optimising that or is that something you think needs addressing or is it something more fundamental than that?
Chris Bradbrook: WellI mean in terms of the cost it's all about grade. Because for the first 15mthswe all running an AISC at about a US $1,000. So, we were making $200-$300 anounce margin.
Matthew Gordon: But still, you know, mid-level rather than what ...
Chris Bradbrook: It'snot the cheapest mine, but it's not the most expensive. But really what drivesit for us, is our unit costs are already low. So, it's all about grade. You getthe grade back to more like a 4g/t stope grade. That's when you're going tomake money.
Matthew Gordon: So, when you said the unit cost, what do you mean by that?
Chris Bradbrook: Well,you know, what it costs you to move a ton of rock. We've got a very stablehandle on those. We've got them low. So, what then drives it is how many ouncesper gram are you going to get per tonne.
Matthew Gordon: But you can move volume of dirt efficiently and with the equipment you've got, and no need to change that. You just need to get higher grades.
Chris Bradbrook: Correct.And if you look at the ore, what I can say for the first 15 months we had agood solid plan and we were mining around 4g/t grade and making money. Whenthat plan, the long-term plan kind of evaporated, for want of a better word, webasically had ...go to the easy stuff, which is like 2.5g/t to 3g/t. Andthere's loads of that. But it's not making you the money. So basically, one ofthe first things Keith has done, is he's gone 'OK, let's put together a life ofmine plan (LOM). Where are the gaps?' So, you actually now can... don't mine thatgrade, mine that grade, because that's going to make us money. So, it allsounds probably very simple but often these fixes are. You just need someone tocome in with a fresh set of eyes and say... and I was just down there for fiveweeks. So, between me and him, we were basically worrying everyone to death.Just saying 'look this is what we got to do, let's get it back'. And it's notlike we've not done it, that's the point. It's not like we've had this for2.5yrs and we've never made it work. We did. We did make it work. We just haveto go back to what we did. And we're already beginning to see the changes andit's that's simple.
Matthew Gordon: So, tell me about those, so you've made some quick fixes.
Chris Bradbrook: Youknow a quick fix is really getting people focused on the plan and maximisinggrade.
Matthew Gordon: So, what were they doing before?
Chris Bradbrook: Wellas I said it was because they were, I think, they were so frantically trying toget stuff through the mill, they just go to the easy stuff. So there never wasthat long-term planning going on. And so, we've instituted that. For example,one of the things you want in an underground mine, you want three months ofdeveloped stopes laid out ahead of you. So, if something goes wrong with yourplan, you've got an option. We didn't have that. In the time Keith's beenthere, we've already gone from no stocks, to a month's worth of stocks. So,we're already seeing that change. Then we found out that because they werebeing a bit, I guess, frantic with their efforts, they were diluting the ore.That was amplifying the grade issue. So, all these things we've been put in...just basically forcing the guys to basically run to a higher standard. And Iguess you'd always like to think that people just do that. And initially I kindof wanted to run the company lean. And for a single asset, I was thinking 'wellwhy do I need a COO?' Well it turns out, you know, when things aren't workingyou do need someone like that, that can step in and say, 'okay this is whatneeds to be done'. And at some point, when we've got this back on the track, wewill be looking at other assets and you need a COO for multiple assets.
Matthew Gordon: Again, let's come back to M&A as an option in a bit. So again, what are the other kind of quick fixes? He's looked at the plan and he said, 'here's what we need to focus on', is there anything else?
Chris Bradbrook: No.I mean when you say it out loud, it always surprised me how basic it sounds butoften things in life are like that. But it is all about having the plan, stickinto the plan, having the flexibility, so if something doesn't work... So, inother words, you say 'OK if this goes wrong, how are we getting it back ontrack?'
Matthew Gordon: Right. Any other new hires that you're thinking about, having learnt that a COO is quite important to you?
Chris Bradbrook: Wellno, not really. Because we've got all the people we need at site. Keith hasmade a difference, a big difference, no doubt about it. And we're looking atthe... what I was saying, the dilution. I mean that's a big thing. But that...
Matthew Gordon: Dilution of?
Chris Bradbrook: ...basicallywe've taken too much of the waste. So, we're mining it more efficiently, seeyou mine to the grade you planned. Because that's, you know, obviously, if youmine… if you've got 5g/t stope plan and you dilute it to 2.5g/t. I mean you'renot going to make... you might take more ounces out, but you're not going tomake as much money.
Matthew Gordon: So, you haven't been sold a dud in this instance?
Chris Bradbrook: Ohno, not all. I mean, like I say I think one of the things to remember is, thisis an asset that's always been in production. Some assets...
Matthew Gordon: But have they mined the good stuff out of it? I guess that's the question people are asking.
Chris Bradbrook: They'vemined the easy stuff. But I think also part of the thesis was that we couldmake money with what we know is there. But there's something else there. I meanI'm absolutely convinced of it. There's got to be another.... it’s a bigsystem. So, we will find more.
Matthew Gordon: So, what are you doing in terms of identifying this new system or potential new system?
Chris Bradbrook: WellI think part of it is really pulling apart what the asset is. I mean you've gota drill database that's all digitised. And if you were to drill those holestoday it would cost you a US $1Bn. So, it's an incredible exploration tool. Sobig a big part of that is pulling thatapart, figuring out.
Matthew Gordon: Who's doing that?
Chris Bradbrook: Wellwe got our geologist at site and consulting geologists. And we are probablygoing to give the database to, there's a group in Toronto called Gold Spot. Andthey do big data mining. And I think ours is a big-enough set, they'll probablybe useful for that approach. And so, we're doing what we can because thatabsolutely is our best exploration tool.
Matthew Gordon: So, let's talk about some of those longer-term strategies. You mentioned M&A as a potential, but do you feel that you've got to sweat this answer first, or can you concurrently look at potential M&A activity?
Chris Bradbrook: Wellyou need the currency right. I mean we're so beat up we just don't have thewherewithal to look at things.
Matthew Gordon: Can I ask how much cash you've got?
Chris Bradbrook: Wellwe got US $15M. Our enterprise value is US $20M. It's insane. So, I mean thebet anyone would have to make is, OK if you believe what I'm telling you, thatthe fix is there. We are so ridiculously cheap that it is a really goodopportunity. Right now, the market's pricing is as though we're going out ofbusiness, which just is not going to happen.
Matthew Gordon: Well I guess that's why you're here today, to answer those questions about what the future looks like. So maybe talk to some of those things. So, you're going to sweat the existing data and try and see what you've got there and optimise all that activity. M&A is that a realistic opportunity for you, got US $15M of cash, where I guess it's allocated towards current activities.
Chris Bradbrook: Yes,we're very focused on the asset. However, when people show us stuff, I mean,you've got to be prepared. So, you've got to learn about what's around so thatwhen you are ready, you're ready in terms of your knowledge. So, we definitelylook at things and turn stones over. But our focus is the mine. But absolutely,I mean one of the things we learnt from this is, if we've been a multi assetcompany and we started hitting these issues, we could have pulled people fromother operations to help us out. So that has showed us, just from that pointalone, having multiple operations is a good thing. And investors are obviouslyasking for it. They don't like... you know, you live and die by what happens atyour one asset. And investors generally get uncomfortable with that.
Matthew Gordon: Would it make you nervous, I mean given you're, you say, undervalued, that's a claim I think most people make.
Chris Bradbrook: Ifa CEO doesn't think his company is undervalued, he shouldn't get out of bed inthe morning. But we are.
Matthew Gordon: You are the one? Great. Does it worry you or make you nervous about the cost of raising capital in this market with your current situation to do M&A activity, would you feel that you would look at optioning stuff, deferred payments. I mean, how would you tackle an M&A process?
Chris Bradbrook: Yeah,I mean you're right. I mean, where we are right now our cost of capital ishigh. But like I said we're really viewing M&A more now as we just want toknow what's out there, so that when we are in a position to do it, we'vealready done our background work. We've already talked to potential partners.But the first thing is we've got to get this sorted out. Get the marketbelieving it. Get a share price that reflects it and allows us to actually godo stuff.
Matthew Gordon: Okay. Right. So, you're looking at optimising the current processes, operations, hope for higher grades. Being able to identify higher-grades. Reduce that AISC down. You feel with this new COO, you've got the right leader for the technical team in the country. And we should be positive about the future. Is that the correct message?
Chris Bradbrook: Correct.Absolutely. But yes, totally focused on fixing the operation right now.
Matthew Gordon: Let's talk about the team. Just tell me a bit about you. What's your background, relevant to the operation?
Chris Bradbrook: Mybackground? Well technically I'm ageologist by training. It's been a while since I've actually done geology, so Iworked in the industry from 1980 to 1995 and then I was an analyst for aboutsix or seven years. And then I went back into industry. I was V.P. CorporateDevelopment for Goldcorp, but this was when all they were was the high-gradeRed Lake Mine. And then when I left there, I formed New Gold. Which was a verydifferent company to what it is now. It was just the New Afton Mine or depositat the time. So, we raised the money to build that. And when I left there Istarted up a company called Crocodile Gold. Which really kind of led me to allmy knowledge base in Australia. But that became Newmarket Gold, now part ofKirkland Lake Gold and the Fosterville Asset, which drives their valuation, waspart of Crocodile Gold. And then when I left there, I was looking for somethingelse to do. And ultimately this was what came out, Superior Gold.
Matthew Gordon: So, you don't sound very Canadian.
Chris Bradbrook: No, well, I'm a Canadian technically because I've got my citizenship there.
Matthew Gordon: Okay. So, you're based over there. From the U.K. originally. But with an asset in Australia.
Chris Bradbrook: Correct. Yeah, I like first-world assets. I really like Canada, Australia and certain parts of the States. So that is really our strategic focus.
Matthew Gordon: There's a new COO on board. You told us a little bit about him in terms of what he's done, so what is his background?
Chris Bradbrook: Well, the press release outlines this. He's worked for small and large companies. North America, internationally. He's done everything from operating as an underground manager, to a general manager, to a COO to feasibility studies, raise money. So, he's got an MBA too, he's is a mining engineer. So, he's got lots of strings to his bow. He understands all the various parts that matter to a public company.
Matthew Gordon: But you've got him focused on cutting costs and finding ore?
Chris Bradbrook: Well you just look at the problem in front of you and say this is what we need to do. So, and again like I say, he spent six weeks at site knowing full well what I needed and still said 'you know there's a tremendous opportunity, I want to be part of it'.
Matthew Gordon: Okay. And so, who else is on the team? If we look at these constituent parts for companies of your size. Technically you need to know what you've got. Whose looking after the financing and finances of the business?
Chris Bradbrook: Oneof the financiers is our CFO, Paul Armstead.
Matthew Gordon: What's he's charged with doing? What have you asked him to do?
Chris Bradbrook: Wellquite simply, is make sure you know where the money is. Don't do anythingstupid with it. And if we are in a situation where we need money, give me theheads up well in advance. In terms of actually raising money, we've had to doit, that typically will fall to me.
Matthew Gordon: Tell us a bit about that. So, your shareholders are what, institutional at the moment?
Chris Bradbrook: Largelyinstitutional. Canadian, some US. One or two in Europe but basically, it's aNorth American shareholder base.
Matthew Gordon: Any names in there that we'd recognise?
Chris Bradbrook: Yeah,I mean well, Northern Star, our biggest shareholder.
Matthew Gordon: That's presumably part of the deal?
Chris Bradbrook: Partof the deal it was. Century Select which is now CI Investments. They are alarge shareholder. Donald Smith.
Matthew Gordon: They're a Canadian promoter.
Chris Bradbrook: DonaldSmith’s out in New York.
Matthew Gordon: Sorry, I meant the CI guys...
Chris Bradbrook: WellI wouldn't say a promoter. I mean they're a big blue-chip Canadian fund. I'msure they be a bit worried that you called them a promoter. So those would besome of the big shareholders. We had BlackRock at one time. RBIM. So, we've hadactually a pretty good list.
Matthew Gordon: How big is your retail following?
Chris Bradbrook: Iwould say it's reasonably big. I would say we're probably about 10%-20% retail.
Matthew Gordon: Again, mainly Canadian?
Chris Bradbrook: AndNorth American and Canadian. Yeah, I mean every now and again I'll meet someonefrom Europe who has picked the story up.
Matthew Gordon: Is there much liquidity in the stock at the moment?
Chris Bradbrook: It'sbetter. When we first start out, I mean, we were, because of those bigger shareholders,there wasn't a lot of big float. So, liquidity early on was tough, but it'sbetter now. I mean we're not trading millions of shares every day but a fewhundred thousand usually and then every now and again you'll see some blocks.
Matthew Gordon: And those are clearly the institutions trading in and out. But what're the retail guys doing for you in terms of... do you think people understand the story?
Chris Bradbrook: Yeah,I would. I mean because, I've done this a few times, I've always valued retail.I mean, one of the challenges of retail is making sure they understand what youare by. I think from the questions I get from retail investors, they doactually understand.
Matthew Gordon: What questions do they ask?
Chris Bradbrook: Wellthey ask the same things you're asking, which says to me they're not off insome strange place asking questions that aren't relevant. They absolutelyunderstand what matters to us. They ask the same questions institutions do.Which is the same questions you're asking, because it all boils down - therereally are two or three key questions for our story.
Matthew Gordon: Absolutely and that people need to believe you can deliver against those.
Chris Bradbrook: Ohabsolutely. I think I've got a decent track record of doing what I say. And Iam actually totally confident that we are fixing this.
Matthew Gordon: Fantastic. So, who else is on the board that we need to know about in terms of active members of the board.
Chris Bradbrook: It'sa very small board and it was done deliberately. We've only got five people onthe board. And I think with... you know at this basic level the board's job isbased and make sure I do my job. Or management does their job. But I think witha smaller company you kind of want people on who are willing to roll theirsleeves up and help you. Because we just don't have the numbers of people. So,our chairman is Marc Wellings who is former investment banker at GMP. He ranthe London office for a few years as well. We've got Tamara Brown who is a V.P.Investor Relations at corporate development for Newcrest in the Americas.There's myself. There's Rene Marion who was chairman of Richmond. He was formerBarrick and Erico. Really good mining engineer understands capital markets. Well,he was the chairman of Richmond when it got sold. It went from $30M to abillion dollars. So, he's seen this movie before. And he worked for Barrick onthis asset. So, he knows the asset.
Matthew Gordon: So, but is he an active participant?
Chris Bradbrook: Yes.Yeah, I talk to all of them regularly because I use their expertise, like Rene.I mean very important for us as an operator. So early on when I was trying tofigure out what was going on, I said well, what would you do? And actually,Keith Boyle came through a recommendation by Rene, when I said well ‘who youknow out there who would be a good person to take a look at this’. And thenwe've got one nominee from Northern Star.
Matthew Gordon: Yeah. And are they, I mean, they obviously must know a lot about this asset. And the fact they've stayed in says something.
Chris Bradbrook: Ithink they'd like to see us grow.
Matthew Gordon: Right. And it wasn't just like option money ... we'll just do a deal, take a piece of shares.
Chris Bradbrook: Wecould have raised... we raised enough money, we could have just paid them outcash. There were a couple of things. I think they like the opportunity in thebusiness model. They thought they could make more money. They saw that we couldbe a building block, I believe. And selfishly for us, I knew that the numberone question I get asked was, well why would Northern Star sell it. So, havingthem in with someone in the Board.
Matthew Gordon: So, go on then. What's the answer?
Chris Bradbrook: What'sthe answer to that? Well I mean, you got to look at... because this what we'redoing here is really kind of what they built their business model on. Butwithin about three months they bought four mines. They bought this one. A minecalled Jundee in Australia, a mine called Canonabell in Australia, and minecalled Candana. The three of them they got running the way they wanted themvery quickly, so this became a bit of a head-scratcher for them. So, theydecided to run a process...
Matthew Gordon: In the sense of what?
Chris Bradbrook: Itjust wasn't going where they wanted as quick as they wanted to. But theyactually gave us the entire operating team that we needed. So, the team thatmade a success for us when we took it over were the people that had beenworking for them previously. So, they were very important to us in getting itworking.
Matthew Gordon: Thanks for that. So, let's talk about last year in the context of, how do you think it went? What would you have done differently? I think you've answered some of these questions already. Can you try and summarise that for us?
Chris Bradbrook: Welllook, I gave you the reasons why it didn't go the way we wanted. So, what wouldI have changed? Well I guess like, as in all these things, you say well youknow, early when it first started going wrong, we probably should have beenmore dramatic in trying to fix it immediately. But you sort of think the nextquarter wasn't bad. Okay maybe now we're back on track and then late last year,you could see it was beginning to go off the rails again. So yeah, I think, ifI really knew what I know now, I would definitely have moved faster.
Matthew Gordon: Hindsight mining...
Chris Bradbrook: Wellyeah but, you know, we were asking all the right questions. I had the boardinvolved. And we were, ‘well what is this, what do you need'. And yeah, youknow that really is hindsight. I mean it's just like you're peeling away layersof what it takes to get there.
Matthew Gordon: Okay. And again, you've dealt with this slightly, this year what should shareholders be looking out for in terms of what you're doing?
Chris Bradbrook: Wellquite simply, on a quarter by quarter basis, they just need to see that we'reimproving how we're operating. We're back to making money. That is simple asthat.
Matthew Gordon: So, making money or cash flowing?
Chris Bradbrook: No,making money because, I am all about free cash flow. And like I said when wehad the asset going the way we wanted, we were making money, and I mean makinginto the bank US £2M a month.
Matthew Gordon: Get back to that as quickly as possible....
Chris Bradbrook: Yeah.And you know we built a second mine, an open pit mine, all internallygenerated. We've never raised money since we went public. So, we must be doingsomething right.
Matthew Gordon: Debt free. So, there's no kind of funky financing, sitting in the background, looking to clobber you?
Chris Bradbrook: No,and if you look on the balance sheet, you'll see a small number for debt. It'sbecause we've leased financed the equipment. And then it just shows up as anongoing cost.
Matthew Gordon: Very normal. So, give us your five reasons why you think investors should be looking at you and investing?
Chris Bradbrook: Welllook. First world, that's a start. Your first world location. A substantialasset where there's tremendous exploration potential. 100,000oz producer withan enterprise value of US $20M. We will be going back to free cash flow. We'reone drill hole away from a discovery. At some point we will.... we’ve alreadyexpanded the Reserves and the Resource. But if we find something newhigh-grade. I mean there was an ore body there at one time. That's part of ourmineralization called Timaur. And it was a 1Moz of 0.5g/t. So, if we foundanother one of those. Yeah, we'd be happy. But that's...but this is whathappens with these assets. I mean Fosterville, I mentioned before, KirklandLake Gold. That was 3yrs ago a refractory ore body at 4g/t and everybody 'knew'it was rubbish. They drilled some holes and now they're mining 50g/t. I'm notsaying we're going to find 50g/t but I'm just saying that's what happens tothese systems. If you try and understand them, you drill in the right place,there will be extensions. They don't just end. And then this system, this is animmense system. It really is.
Matthew Gordon: Okay. I appreciate your candour and honesty in dealing with these issues. To put your hand up and say 'we've had issues. We acknowledge that, and we know what they are. And we've put things in place to fix those. The investors should bear with us and look forward to what we're gonna try and do this year.' I think that's quite a positive message.
Chris Bradbrook: Yeah.We're telling them they should do something, clearly, it's up to them. But Ilook at our share price and it's been a downward trend since last April (2018).
Matthew Gordon: You think there is some upside there?
Chris Bradbrook: WellUS $20M enterprise value for the story I've just told you, usually you getthose valuations because people think you're going out of business.
Matthew Gordon: You'd get that for the equipment, wouldn't you?
Chris Bradbrook: Ohyeah. I mean look. You'd sell it... if we sold the asset today, you'd sell itfor more than that.
Matthew Gordon: Right. Well look Chris, thanks for your time. I appreciate that. Do come back and keep us abreast of the story as it develops with the new plans, especially with the data mining element. That sounds very, very exciting to me. Thank you very much.
Chris Bradbrook: Allright. Thanks a lot.
Matthew Gordon: Appreciate it.
Company page: https://www.superior-gold.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.