Interview with Alan Pangbourne, CEO of Chesapeake Gold Corp. (TSX-V:CKG). Chesapeake is focused on the exploration and development of precious metals projects in the Americas.
Chesapeake owns the Metates project located in Durango state, Mexico. Metates is one of the largest undeveloped gold, silver and zinc deposits in the world. Few world-class open-pit mines have low cost, scalable development options. Metates benefit from its highest ore grade early in the mine life, a low strip ratio and close proximity to key existing infrastructure. Chesapeake has access to a proven and innovative precious metal processing technology that can develop Metates as a sulphide heap leach operation.
Matthew Gordon: Can you kick off, give us that 1-minute overview of the business for people who perhaps haven't heard it, and then I'll get stuck in after that?
Alan Pangbourne: Sure. There are probably 3 things about it that are different. Firstly, the underlying asset at the taps is mass. It's over 18Moz of Gold and 500Moz of Silver in Mexico, in Durango, which is a good place to be. We're well funded. We've got over $35M in the bank and with the deal that was done with Alderley Gold, we bring in new technology and a new team that can solve the well-known metallurgical problem that this project has had forever. It's not really a met problem. It's more of a total capital cost overhang problem. The Pre-Feasibility Study that was done in 2016 had a price tag of about $3.5Bn. The process we're bringing in really brings an order of magnitude difference to both capital costs and operating costs, and that then obviously helps margins significantly.
Matthew Gordon: Let's bring it back a bit and see what you've walked into if you don't mind. Why don't we start by understanding who you are? What's your track record? What have you done? Where have you come from?
Alan Pangbourne: Sure. Alan Pangbourne, I'm a metallurgist by profession. I've been in the mining industry my entire career. I've had many different hats and many different seats. I've lived in 7 different countries, worked in probably double that. I worked in South America for over 22-years. I ran an engineering company initially, building lump-sum turnkey projects for the Gold business specifically, in Chile, Peru, and elsewhere. Then I went to the other extreme and joined the largest mining company on the planet, BHP, and did the first Pre-Feasibility Study for Agua Rica, which still hasn't been built and that was one of the reasons we probably dropped it at BHP built the Oxide Project up in Peru and then built probably the largest single-build Sulphide heap leach oxidation recovering Copper at Spence, which is just outside of Columbia and Chile, that was $1Bn back when you could still buy something for $1Bn. It was a massive project. It was 250,000t a day mine, 200,000t of Copper. Just huge. So I've built stuff. Most recently, I was the COO at SRR for 5-years. I came in just after they'd started up Piriquitas in Argentina. It wasn't doing what it was supposed to do and I came in to help the new CEO at the time. We fixed that, and then as anybody who's followed the SSR story, we took that company from a single struggling asset all the way up to 3 assets across 3 different countries, improved all 3 of them, and turned it from 100,000 equivalent Gold production to over 400,000, and the market cap went from 500 to 2Bn. More importantly from my point of view, we changed the culture inside the company to be a production company where you get rewarded for delivering. At the end of the day, my role as COO was to deliver production costs consistently, quarter over quarter, year after year. We changed the culture in SSR and we did that. In fact, we did it the entire 5-years I was there and they've continued to do it for the last 3-years since I left. Change the culture; change the company. I've done all that before. Now, with Chesapeake and Metates, it's, do it again.
Matthew Gordon: Did you know what you were walking into or was it serendipity that you came together?
Alan Pangbourne: We were looking for it. We were looking for this type of project because the technology we bring will change the way people look at refractory Gold deposits.
Matthew Gordon: You're talking about the Alderley oxidation technology that you own, right?
Alan Pangbourne: We don't own it. We've licensed it.
Matthew Gordon: Got it.
Alan Pangbourne: I've been watching the technology for quite a long time and I approached them about 2.5-years ago, got a licence, and then put it into Alderley, which was our private company. We've been looking at assets for the last 2.5-years, trying to find the one that works for everybody. When you do these deals, you have to have 3 things. Technically, it has to work. Financially, for both parties, it has to work. And socially, it has to work, that they're going to allow you to come in and take over their company and do what you need to do to make it all come together. Chesapeake was the one that we found that ticked all the boxes. We looked at many. Others ticked 2 out of 3, or 1 out of 3, or 0 out of 3, but Chesapeake ticked all 3 boxes. Most of the previous team is still there and I’m working with them and we'll work out how we're going to put all this together as we move forward. I've only been in the seat for 3-weeks and you're the first major interview I've done.
Matthew Gordon: Let's talk about the technology. You licensed this out and decided to work with this technology, how long ago?
Alan Pangbourne: I've been watching it for a long time, probably 7-years+, and then 2.5-years ago I put together a company, brought the license into it. With that license, I get access to all of that R&D that was done over the last 7 or so years, and also, more importantly than the patent pending and what works, I actually get to see all of the other things that they tried that didn't work. That's really important. People often miss that piece. You've got a recipe but that doesn't make you a chef. It's all those things that don't work or don't make it come out quite right. That gives you the operating window that you've got to operate in. And why. The important thing as well with these things is why. Why does it work? Not just, it does. You've got to understand the fundamental physics and chemistry behind it. Once you do that, you go, aha, got it.
Matthew Gordon: You've got a license to use this technology and adapt it any way you see fit, or are they in charge? Who's in charge when you're applying it to something like Chesapeake? Who makes the decisions?
Alan Pangbourne: We do. The only tie back to the license is a 1% Royalty Stream on production using their technology. If for argument's sake, I came across another asset where there's a different way to do it, and as you said I enjoy solving problems, we can go after that as Chesapeake and do what we want with it. If we want to use the license and that technology, we owe the owner a 1% Royalty Stream once we're in production. Any improvements are mutually shared. That's the only thing. There are no limits on where we can use it. It's unrestricted. As long as we comply with the terms, it's uncancellable. Off we go.
Matthew Gordon: You've got someone who owns this oxidation technology. They've licensed it to you, and to how many other people? Where is it being used successfully?
Alan Pangbourne: The technology is being developed by the licensor at one of his sites at the moment. They're in front of us. They are way further down the track. They've already done all the test work; they've already done the variability columns on their ore body. They're built pilot plant pads, small ones, and then larger ones, and they're ramping up now. They're in front of us. We're a fast follower, not the bleeding edge. That's 1 advantage that it has, being in the situation we are in. That's the only other place it's being used at the moment, where it was developed. As far as we know, there are no others out there. They're not restricted on what they can do with the license, just the same as I'm not restricted on where I can go and use it.
Matthew Gordon: What is the license? Are we talking about a flow sheet? Are we talking about chemicals?
Alan Pangbourne: All of that.
Matthew Gordon: Tell me what it involves.
Alan Pangbourne: It's a process chemistry set that's applicable to heap leaching. It's a bit akin to the Copper business. The Copper business has been oxidising secondary Copper Sulphide for 3-decades. I saw the very first one, just out of Santiago, and I built one of the largest ones. I've been around the whole concept that you can oxidise Sulphides and get good recoveries out of half-inch crushed material in a heap leach for a long time. When I saw this technology on the Gold space, I recognised it and I went, 'Aha, Gold refractories, billion-dollar autoclaves.' This doesn't require billions of dollars to build a heap leach. You can build heap leaches for 1/10 of the price that you build an autoclave plant for. If you look at the presentation, there are some benchmarks in there that compare autoclave plants, that are known, against heap leach plants that are known, both capital and operating costs. The delta is phenomenal.
Matthew Gordon: We're talking mostly about Metases in Mexico. There's an outlier project in Nevada too, Talapoosa, but I think if you don't mind for today, we'll just park that up. The key for you is being able to unlock Metases because these are huge numbers. When I was reading this, I was trying to work out if this was one of the world's worst business plans because it just kept getting bigger and bigger and bigger as opposed to trying to unlock the value by actually starting to mine. Was that the problem? The people who were running it couldn't work out how to unlock it, technically, metallurgically?
Alan Pangbourne: They worked out how to unlock it. An autoclave solves the problem. It does work. The problem is the capital cost and therefore the economics. If you're prepared to give me $3.5Bn, I'll go build an autoclave plant. I won't because I think that's a stupid thing to do in this particular case. The economics don't work. It's an economic issue, not a technical issue, once you find another way to crack the nut. You don't need a sledgehammer, which is what an autoclave or a roaster is. You need to tickle it, not bash it. The heap leach approach allows you to do that in a way more economic position. Way less energy, way less capital, it's almost nirvana if you can do it this way. We believe we can. We believe we've got the chemistry set that will do it.
Matthew Gordon: I get the economics. You're coming along saying, 'Hey, I can probably knock 90% of the cost off of this and unlock the potential here.' What have you done to be able to prove that to the previous board who you have- are they still there, or have you completely replaced them with your team?
Alan Pangbourne: Yes, 4 of us are new on the board, 3 new board members, and myself, and I think 2 dropped off. We gained a couple. It hasn't been a complete RTO. It's an agreed transition from old to new.
Matthew Gordon: You've had to say, 'We've got a solution here,' and they go, 'Sure you have, they all say that.' 'No, let me show you,' and you've stepped in to say you've done what? Lab conditions? Pilot? How has it worked?
Alan Pangbourne: We did 2 things before we did this deal. 1 was that we obviously got some samples from Metases, ran them through the lab, and made sure that at least the chemistry works. If the Sulphides won't oxidise, it all becomes irrelevant because you haven’t cracked the first step. We check that A, Metases' Sulphides will oxidise, and B, after they've oxidised, I can still get the Gold and Silver with Cyanide. It ticked those boxes. It worked chemically, technically. The original board got some independent people in to review the test work, review the results. We also took 2 of the board members at different times to the site where it's being developed. It's really impactful when you can stand somebody in front of a pile of grey rock and then walk them around the corner and go, 'Look, see, now brown rock. Kick it. Just kick the surface and see how deep and how brown it is. We didn't go and paint it.' When you stand geologists and other technical people in front of something at scale where it's started grey, it's now brown, and Gold and Silver is coming out the other end, those 2 things together got them over the line.
Matthew Gordon: Talk to me about the volume. You've taken them to a site where you're also implementing the technology, at what kind of scale?
Alan Pangbourne: They're done test heaps up to 50,000t and they've done 3 of those. They're working on scaling it up beyond that.
Matthew Gordon: What are the problems as you get bigger?
Alan Pangbourne: Operator control in the window is 1 issue that comes up. Again, it's a bit of changing mentality. You’re actually trying to control a heap leach, not just throw it and forget it, and it’ll be right, if we don't get it today, we'll get it tomorrow, if we don't get it in the primary heap leach, we'll get it in the residual when the next lip comes over. You hear that mentality a lot around heap leaches. One of the nice things when you start with a new project that doesn't have anybody you can mould them to fit at the beginning, as you're selecting the people that, hey this is new, this is different, it has to be run a certain way. You can't bring all your baggage with you. It's like any process; if you've never seen it before, there's a way you've got to do it. As I said earlier, part of the information you've got is, we know what not to do, not only what to do. We understand why, as you widen out that operating window or try and mix things, it doesn't work, and why it doesn't work, and how to stay away from it.
Matthew Gordon: You are getting the recoveries that you think you can get. It does cost what you think it's going to cost. How long are you allowing for that process, first of all?
Alan Pangbourne: Initially, you're bang on. The first thing we've got to do is large diameter core drilling. Get some 3.5" rock. Get it up to a lab here in Vancouver and do all the typical test work you'd expect to see. Crushed size; oxidation times; reagent strengths and consumptions; Cyanide leach times; ore variability; ore type testing; all of that work needs to be done. That's going to take 18-months to 2-years. I've been around this long enough. Heap leach test work is not a 1-month job. CIP might be, but with heap leach, you've got to give it time. Even a conventional heap leach takes 90-days per column.
Matthew Gordon: You're talking about doing a PFS next year. How are you going to produce a PFS before your met work is complete?
Alan Pangbourne: The met work by mid-2022 will be sufficient to support the PFS we're going to update.
Matthew Gordon: It gives you a certain degree of confidence because you will continue to do that work.
Alan Pangbourne: We will continue to do more test work. We won't have completed all of the variability across all of the ore types but our focus initially is on about 205Mt at about 1g/t Gold equivalent that is all contained in the intrusive. It's a slightly higher grade than the rest so it gives you a nice starter project to work on. We'll have the majority of the test work for that done when we do the Pre-Feasibility Study update. Then we'll we're continuing to do particularly ore variability test work. There are 2 camps out there. Do I build a massive pilot plant or do I do lots of variability? I tend to sit in the variability camp just because variability will surprise you. The 1 thing I will guarantee you is the pilot plant sample will not resemble the ore body, except exactly where you took it. It's too much risky. You're better off spending your money drilling way more 3.5" holes and getting more variability samples from around the ore body, and understanding that variability, than a single point that you decide on. That is very dangerous.
Matthew Gordon: When you're doing the new Pre-Feasibility Study, you're going to have to give ranges in terms of the economics, aren't you?
Alan Pangbourne: Yes.
Matthew Gordon: But you think by the time you do a Feasibility, which you're telling us is 2023, you should have a little more certainty because of your variability testing, and you've got more data points to feed it. That's what you're saying?
Alan Pangbourne: Exactly.
Matthew Gordon: You raised some money in August. $20M. Well, the previous management team presumably raised the money. How much have you got left today?
Alan Pangbourne: We've got $35M in the bank today, and we believe that's enough to actually get us to the end of the Feasibility Study. The reason for that is, with such a large deposit that's already been drilled out, I don't have to do a large infill drilling program until you get to the point where you say, 'Right, we're going to build this thing, do the infill drilling for grade control, and all the normal things you do before you start up a project.' $35M should get us to the end of 2023.
Matthew Gordon: You are suggesting the capex should come down dramatically. This doesn’t need a major or large mid-tier to step in and get involved. Is that what you're mooting?
Alan Pangbourne: That's correct. If it all works out as we believe it will, and we've obviously done some calculations before we even did the deal on what we thought this could be, you end up with a project that is financeable by a company the size of Chesapeake, it's buildable and deliverable and operable for a company this size, and then it's scalable. Because we're starting just on that 205Mt, we're thinking about starting in the 15,000t - 20,000t a day range. Why that range? In my experience, it's actually a nice size. Nice is a horrible adjective, but it's a project that a small, competent management team can keep their arms around and actually deliver it on time, on budget, safely and it will work. The 4 things you have to always do. It's financeable by a company the size of Chesapeake. You're not looking at going out and raising $1Bn in equity. How do you do that? You can't. You don't need one of the big boys to come in and say, 'We'll help you, trust me.' We can do t ourselves. it then forms the cornerstone of a company. There's 1 slide in the deck, even when I put it together, I looked at it and went, 'This can't be right.' We checked the numbers and checked the numbers. It's the one that compares the 2P reserve to the 2P reserves of the likes of Kinross, Kirkland Lake, Agnico Eagle, the 3 big ones next to it. There is more 2P reserve in Metases than there is in those other 3 companies as a whole. That's the end goal. That's not going to happen tomorrow or in 3-years, but that's the end goal. Metases is a cornerstone asset to build a real mining company on. That's what we want to do. Build it small to start with, capital that we can finance, a project we can manage, and then scale. Scaling up is always easier and cheaper than building the first one. It's all about risk mitigation as well. It's lump-sized pieces that we can take, and we can digest, of what is an elephant. We know where the elephant is. We know what the grade of the elephant is. It's now just, how do I break it up into pieces and then build a company around that.
Matthew Gordon: When do you think people should start listening to your story again because you haven't proved anything yet? You've still got some proof points to hit. Why should the market pay attention to you now?
Alan Pangbourne: It depends on the type of investor that they are. Uncle Eric will tell you all the time, 'Take the Metases resource and reserve, give me $1oz for the Silver and I'll give you the Gold for free, and we're still undervalued by a factor of 2. He said that in his podcast around other assets as well. It's one of the mantras he uses. We all know Eric is looking for large Silver plugs and that's fine. If you're that sort of investor, you should probably already been in it because Silver's already gone up. You might have even missed the boat a little bit but Metases has been quiet for a long time. We're significantly undervalued on that metric. As soon as the market understands that we're not going to try and build a $3.5Bn project, the overhang that that has on the market should prick up the interest of the investors because at a 90% reduction on the capital, you can do the numbers yourself and you suddenly look at it and go, 'Even at 75% recoveries, which is what you'd typically see in an oxide heap leach, at the size we're looking at, we're undervalued compared to our peers.' Big time. A factor of 6, I think; one of the slideshows. It really depends on what type of investor you are and when you want to come into the story. There are multiple entry points. As we produce the results from the test work, even today if it's an option play on the metal price, take your pick.
Matthew Gordon: You talk about different types of investors but what type of CEO are you? Are you tempted to leverage this frothy Silver market at the moment and change this to a Silver Lead Story?
Alan Pangbourne: No. Fast money moves around and it's called fast money for a reason. You saw it with the Reddit thing that was just ludicrous. We're going to build this thing. We're going to build a company. It's the same as I did when I worked with SSR. We took a struggling company with a single asset and built a bigger, better, reliable, predictable company out of it that makes money. Then you can value me as a company, the same as you value Kinross, Kirkland Lake, Agnico Eagle, B2, whoever. That takes time but I'm here for the long run. One of the things that a lot of people don't realise, the deal we did with Chesapeake was all paper and it's locked up in Escrow for up to 7-years and it's based on milestones. I've got skin in the game. I'm here for the 7-year ride to get this thing built, running, and beyond.
Matthew Gordon: What do you mean, up to 7-years? When can people start dumping this into the market?
Alan Pangbourne: It's all in the public market now but I think there's a 5% per annum for the first 4-years, and then there are 3 milestones: Feasibility Study, construction decision, commercial production, on Metases or any other large asset that's not Talapoosa.
Matthew Gordon: There's no big overhang waiting to happen?
Alan Pangbourne: No. There isn't a big bang when all of a sudden there are 10M shares suddenly coming out, unless we're already producing. They all come out by the time we're in commercial production.
Matthew Gordon: What's your view of the market going forward in terms of where we're at? You said that ridiculousness with Reddit and so forth, I guess you're talking about the Silver squeeze.
Alan Pangbourne: And others.
Matthew Gordon: Where do you think this thing settles down? What sort of pricing do you need or expect to see?
Alan Pangbourne: We still need to do the study work to actually understand what the margins end up looking like. It's going to be a very healthy project, certainly at these prices. Way back down 1,500 or below, I wouldn’t be surprised if it's under 1,000 cash cost, easily. We've got to do the work first. Where's the Gold price going to settle? I don't know. The 1 thing I do know, whatever I tell you I'll be wrong.
Matthew Gordon: Probably. We all will be.
Alan Pangbourne: Definitely.
Matthew Gordon: You've come in, made an agreement, your feet are just under the table, and you’ve got a bunch of stuff you've got to now deliver into the market. We can expect to see, what? What regular communication can we expect to see from you with regards to the tests and res results?
Alan Pangbourne: There are a couple of things. We're working on getting the permit, mobilising a contractor to drill the holes. We've already started doing that and we have to get that on the ground by the end of the month. Once we do, we're letting the world know, we're drilling the holes guys. Then we'll get the samples up to Vancouver. We've already talked to a lab; we're sorting out quotes on what the work's going to cost. I need to pull the budget together for how much money we're going to burn this year, go back to the board and go, 'Here you go, this is what we're going to spend it one and these are the different things within that.' One of the things we want to do, which is probably a little unusual, is to take the existing PFS and get it back and update it, where in section 24, 25, you can add other significant information under the 43-101 guidelines, where we put the Scoping Study of what this looks like, with Metases. We'll do some engineering around layouts, earthworks, construction costs in Mexico, what does it cost to get reagents down to Mexico, all of those things say we've got a handle on at a Scoping Level. Scopings +/-30+. Then investors can compare and see if they believe, if the met tests are positive, this is what it could look like and compare that to the autoclave, which we don't think is the way to go.
Matthew Gordon: The proof is in the pudding so let's see what comes out of the next few weeks and months. Best of luck with the new venture, I hope it goes well. Stay in touch.
Alan Pangbourne: Thanks a lot. Have a good day.
To Find out more, go to Chesapeake Gold's Website.
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