Interview with Gilbert Clark, Exec. Director of Meridian Mining (TSX:MNO). Meridian Mining is focused on becoming the next mid-tier Copper-Gold developer with a focus on Brazil.
The Company’s priority is on the Cabaçal project, an advanced VMS district-scale Cu-Au project located in the state of Mato Grosso. Meridian’s Board and Management team has a track record of development, financing and operating natural resource projects in Brazil and internationally.
Matthew Gordon: Can you give us a 1-minute overview of the business and then I'll pick it up from there from there.
Gilbert Clark: Meridian Mining is a TSX-V listed company. We have focused on Copper and Gold development in Brazil. Recently we acquired a project that was initially developed by BP Minerals, the mineral exploration arm of BP. This was subsequently acquired by Rio Tinto, and when they shut down a small selective underground Goldmine it was hidden for about 25-years from the public markets, so we negotiated the transaction to bring it into the public markets and we're looking forward to developing it.
Matthew Gordon: Can you give us a sense of what you walked into and the task you were given?
Gilbert Clark: I walked into a company that had a failed investment philosophy. It had an unwieldly capital structure, a balance sheet that was a complete mess, and together it was totally unsuited to the public markets. I had to address all the issues in the company, make it attractive to equities and general investors on the public markets of the TSX.
Matthew Gordon: Let’s explain that in a little more detail. Did the people leave or is the strategy the asset?
Gilbert Clark: They were producing Manganese and a semi-industrial manner and it was just commercially unviable: the cost of transport, of commodity, we had a very large workforce of 180 people, and the location was unsuited to that commodity, which is bulk. I had to go through and ensure that we honoured all of the existing contracts, terminate the ones that were unviable, reduce the corporate burn. The corporate costs alone were around USD$900,000 in 1-year. I had to bring all that under control.
In hindsight, I can understand the methodology of the decisions, but I could not correct them. I said, what do you have? They have a very good asset, the Espigao project at the time. The Manganese was just part of a soil anomaly so we decided to focus on that going forward, but that simple Manganese operation was shutting down, and it was put on care and maintenance in December 2019. But when I did that, one of the great things about Meridian was it had a management team that was really experienced in operating in Brazil. I've seen enough companies go into Brazil, fly in expats, and fail. I had a team that had worked together for a number of years of mining investment professionals from Brazil, and I thought that's a human resource and I can build something around that.
Matthew Gordon: Tell me about the capital structure, the financials.
Gilbert Clark: At the time we had about 180M shares out of which I think 82% were owned by a Global resource fund and debt of USD$23M. That meant that they couldn't do anything with it. The capital structure was illiquid, the debt was too high. People did not want to invest. I made the decision to speak to the fund managers and I said: ‘Going forward, you can have 100% of 0 or you can have 10% of something - so what is it?’ As they're representing their own investors, they said that they would structure it so that we surrender or gift our shares to the company. As for the debt, we were trading at USD$0.04c at the time and we converted all the debt at $2.50. Half the debt was converted straight away - that was the principal, and the other half was put into a limited recourse loan with a call option at a fixed conversion price of $2.50, which is 5.4M shares. On top of that decision, we could go to the market and say we will raise capital to develop this company, because we have a fantastic project and a really good team. I opened this to general investors. It's the only occasion the TXV where we’ve gone through a capital raise, come out the other side of it with only 80M shares on issue and the minority actually increased their position. So we took care of our shareholders, not only the new ones but the minority long-term shareholders, so everyone was in a win-win scenario.
Matthew Gordon: As you say, for Sentient, it's fairly binary: all of nothing or some of something.
Gilbert Clark: As a public company it could not continue with that structure. That was a legacy issue. Again, we addressed that legacy to lay the foundations to grow the company.
Matthew Gordon: Are there any legacy decision-makers left?
Gilbert Clark: No, we completely restructured the board. With the exit of the fund, the last director who was part of that group was actually a nominee from the fund, he was a great guy who was a part of the turnaround. He departed and we went through a stability phase where we brought John Sabina, a well-known legal entity from Toronto. He was really there for stability. Then we went through the corporate restructuring phase, over the last 12 months, we had Charles Riopel. He's a fantastic guy. Now we are looking to the future: the resource expansion and resource development. I’ve come on as executive chairman to work with my CEO, Dr Adrian McArthur, to drive our latest adventure, which is the focus on the Cabaçal Gold.
Matthew Gordon: Who are you 2 guys? What have you done? Have you made shareholders money in the past?
Gilbert Clark: Absolutely, and paramount in any investment is how do you deploy capital and manage your equities? When I did that first raising in July, we brought in a completely different balance sheet, completely different corporate structure and that's when you can look at future deal flow and leverage that. We then looked at what was in the Brazilian Market. I like Copper and Gold, which have basic capex and opex scenarios. We identified a project called Cabaçal South, and what was lucky about this project, or the team, is it's not a team thrown together today, we are all very experienced investors. Now we're looking at bringing Cabaçal into the public market. It doesn't have that exploration, discover or permitting risk. It doesn't have management risks. It's all about managing the risk of the investment and making the correct decisions the investment.
Matthew Gordon: What's your relevant experience? What are you personally bringing to the table?
Gilbert Clark: I've worked in private equity for the last 10 year. My role was in due diligence. Within the fund, a lot of guys would come across my doorway saying, we have this great project. I said, this one doesn't suit us, or for these commercial decisions, or these technical or production decisions. This is risk. Then Adrian, who has been working in Brazil for 7-years, he has the operational experience to understand the timelines, legislation, the mobilization timeframes and how they're executed. I actually brought Adrian back into the company in June 2018 for that very reason. Then, as we went forward, I dropped out of the interim CEO role in July 2020, I brought him in as CEO, so we kept that continuation of management. He's very experienced in Gold exploration and he has a PHD in volcanic systems, so he is very experienced.
Matthew Gordon: You are the markets and the finance guy as part of this turnaround and he's the technical component.
Gilbert Clark: Also, management operations. This is actually Adrian’s first gig as a CEO, and I stayed on as support. When we actually became a greenfields exploration company with Espigao and then we acquired Cabaçal, it fundamentally changed the direction of the company because instead of greenfields exploration, which is quite suitable for a new CEO, we've gone into resource development and resource confirmation, and that's a completely different corporate skill. I came in, basically today, to focus on executive chairman role, to support my CEO and then focus this company going forward, making the correct decisions to deliver for investors.
Matthew Gordon: You've decided to take care of fundamentals first, to make those changes internally. What are the big things that you think have made a difference to the basic structure of the company to allow you to hit 2021 at that speed?
Gilbert Clark: When we acquired this company's project, Cabaçal, we structured it as a private equity deal, whereby as you decrease the risk, you increase the value. When we acquired the project, it had been predefined by one of the mining majors, therefore, the historical data had been done to a Rolls-Royce standard. We had a lot of data: 600 diamond drill holes, 70,000m of drilling, but it's not compliant, so we're taking a statistical database that is not compliant with the 43-101, we are going through a process of making that data and information compliant so we can then go forward and calculate our first resource. That's a real pivot point because I see a lot of companies that say, we have these drill targets, etc. In our case, we have a defined data of 400 diamond drill holes and additional underground drilling. We have existing historic records, so we know what we have.
Matthew Gordon: When you are looking at this data, what's it telling you and how do you then describe that to the market?
Gilbert Clark: I chatted with a friend of mine who is ex-BP, we were discussing this in the early stages when the mine was sleeping. This is not a major’s project. Anyone who tells you that is just marketing. What we have is a real opportunity to develop the next mid-tier company. As an example, when BP sold it to Rio Tinto, they acquired Kennecott at the same time. So you go to the CEO at Rio Tinto: I've got 20,000oz of your Gold project, or I've got Kennecott - what are you going to focus on? They shut down the little things but when they shut it down, this was just focused on Gold with a 3g cut off. It’s a VMS project. They didn't really have an understanding of the size of what VMS deposits can be. You are correct: it would never come to a Vale, a Rio or any of those majors, it’s not even in their ballpark. But to develop a mid-tier Copper-Gold producing company, this is absolutely perfect.
Matthew Gordon: Let's talk about the asset because I want to get on to how you move this, how you fund and build this. What do you have at Cabaçal today?
Gilbert Clark: Let's be very clear. What do I know? I know that for 5-years, the previous owner operated a very small selective high-grade Goldmine, but at the same time they did an extensive drill hole program. My mineralized envelope has been predefined. Hence, I know X, Y, Z. I also know that where they stopped drilling, it remained open. We know that in 2007, there was a very modern bB0 survey done of this project by a third party and that was up strike, down plunge, along trend. We had, quite significantly, 10 plates. Thus, my central core asset, which is the Cabaçal Goldmine is actually the Copper-Gold mine and that's a historical resource, there were some 21Mt of 0.5% Copper, 0.5% Gold. However, we do know that the base layer of this deposit is quite high grade in Lead, Zinc and Silver. That's not calculated in the Copper equivalent, so we know that we have a lot of upside on this project. It's open. We have predefined targets. Again, I can say, I've got this target to test. We are in this process of confirmation on the drill hole database. I have 400 drill holes that I can test. I'm not going to target all of them because I could run the risk of drilling the voids. That was a small operation.
What else can I say about it? I know that there is no metallurgical risk. I know that the concentrates produced, about 60% of the Gold is through gravity and the balance went into a Copper-Gold-Silver concentrate. I know it is a clean concentrate. It was 25%-26%. Sometimes the grains of Gold went up to 90g. Silver is certainly mention in the 100gs. All I am looking at on this project is the initial discovery risk, remuneration risk. That was done. What we're doing is a statistical confirmation of that database. We've actually released some of the information on that.
Matthew Gordon: You've raised CAD$4,3M, what are you going to do with that? Are you going to bring a partner in to enable you to do this or do you think you've got the contacts and ability to go out and raise more capital to advance the project yourself?
Gilbert Clark: Absolutely. We announced at the beginning of the fieldwork, we've got a 10,000m program. The majority of that's going to focus on the carousel Copper-Gold deposit. That's just the biggest bullseye in the mining industry at the moment. We have the in-house team of geologists, engineers, country managers, lawyers, accountants, Human Resources, environmental engineers. That was that core team that I kept from that historical operation. We have a great reputation in Brazil for how we've actually conducted our work, thus, I don't have operational risk.
Yes, we will go forward, and we will raise more money. I've said this to many investors: we are bringing on an asset that's not been seen in the public market since they broke up. This is a really significant Copper-Gold project. It is de-risked; we just need to execute the money into the drill hole. We might we should be mobilizing in mid to late-March with drill rigs, we will be going through historical database and picking out which targets to focus on initially. At the same time, and I see this is a little bit of a failing in the junior market: companies will come and say: we are going to develop resources. That's great, but that doesn't create value. Creating value with assets, tenements and permits is equally important as generating resources, because if a company is to look at us and say: we want to buy you, what permits do you have? Without permits that will not create value, that will create a risk for me. Therefore, as soon as we advance our resource confirmation and hopefully infill drilling as an expansion program, which we are planning to start in March, we're still going to advance all of the associated tenements. This is not an exploration licence. This is a mining lease application, so we're already quite advanced down that permitting road.
Matthew Gordon: You are an USD$18M market cap though.
Gilbert Clark: Yes, we are coming through the project. We completed the financing in December of last year. We have come through the doldrums of the Christmas and new year program, and now we're rolling it out. We're absolutely rolling it out and seeing very strong equity growth. We just need to get the message out. One of the most interesting things about communication in this project is that my LinkedIn account and my Brazilian colleagues accounts are getting hit because they know about the project. The international market is not really aware of it yet so we're going to go out and raise the money. That Capital raise was actually quite well supported by new investors and also existing investors.
Matthew Gordon: They're always oversubscribed, you know the game.
Gilbert Clark: Yes, but we are very happy with how we did it. It's all about making sure that you keep your investors up-to-date and focused on the long term.
Matthew Gordon: The drilling needs to happen. You need to be able to come back to market and say: we've done what we said. We know a bit more, and here's the plan going forward. How much of that cash have you got?
Gilbert Clark: We're sitting on about USD$5.1M at the moment.
Matthew Gordon: How much of that do you allocate to the drilling?
Gilbert Clark: The total drill program is about USD$4M.
Matthew Gordon: That’s a big part of the plan is dependent on the results coming out of the ground.
Gilbert Clark: Exactly. You are looking at the results coming out of the ground. We've actually released a twin hole that was done in 2015, that's when we saw the uptick in the Silver, Lead and Zinc, because we know what we're going to drill. We have released some of the drill holes, like the 29m at 6% Copper, 3g Gold. These aren't our numbers. They are BP’s numbers that were reported at the time. Now, say, drill hole X – we will put it next to it do that statistical correlation. We don't have any surprises in where we are drilling. We don't have any real surprises on the assets we're going to deliver. We already have that information.
Matthew Gordon: You've got 600 holes already, is that correct?
Gilbert Clark: 600 holes across the project. 400 holes through the main deposit.
Matthew Gordon: I'm trying to see what your focus is, because if you're only doing a little step out from existing holes, it doesn't give you much new data, but that's what's necessary now, to get everyone comfortable with the plan?
Gilbert Clark: It also starts the process of taking that and saying, here's your 400 holes. Here’s our 15% correlation of replicated. Yes - tick. And all of a sudden, that 600m x 700m existing mineralised envelope will become a reportable compliant resource statement.
If you look at the historical amount of money that's gone into this project to drill those 400 drill holes, fly that 2,000km of airborne geophysical survey, the money that's gone into this project we're now picking up at quite an amazing price. It's unbelievable. The equity growth we're going to see in this one is not based on speculation. It's based on drill hole facts. We will take BP/Rio Tinto’s drill hole, put ours next to it and that validates it. That's why I say there is very little risk. I'm not being risk averse; I'm doing the resource right.
Matthew Gordon: You're saying that from a position of being able to talk to the market being able to raise capital going forward, that's the way you need to present that data, so this is the best way to spend your USD4M?
Gilbert Clark: Absolutely, but at the same time, confirming those historical 400 drill holes. We had quite significant templates directly off to the west and to the southeast of the existing mineralization. But 1 of the holes we've talked about putting into the market, it's 29m at 6%, it is on our presentation, to the south you can see V templates. For a junior company who has predefined diamond drilling, with predefined V templates to follow up on along strike, and down in an existing envelope, it is just an unreal scenario for us to have.
Matthew Gordon: Using the same logic, what would the next step be? You need to raise more capital, but what would you spend the money on?
Gilbert Clark: We will then start going down that road of a Preliminary Economic Assessment. We want to say: we brought in some really clever metallurgists from Falconbridge. We have worked with him for a number of years. We're going to basically take those concentrate sales sheets that say it's got X, Y, Z of Copper, Lead, Zinc and Iron. Work through the metallurgical groups, work through a pilot scale or desktop scale test first, just to confirm that, because then I confirm any metallurgical risk. At the same time, we've put out, which is really quite important, the ESCG. Many companies come into Brazil without engaging with their stakeholders. We know our stakeholders. We will take our existing ESCG, and we are investing in local communities and our reception with local communities has been fantastic. They remember the employment, the good practices that Rio Tinto did when they operated the mine. So we're going to be going to invest into that.
When I look at the project, there is a wealth of upside targets. That's great. That's medium to long-term. Let's just focus on building that quite significant resource. Once we have defined that, we can do the 43-101 statement, then the PEA, but let's focus on the low-hanging fruit because this isn't 100m-200m down. This starts at about 20m below surface, and most importantly, in that part of the world the oxide layer is very shallow, so I won't have low recoveries in the hard rock flotation circuit. The oxide layer is about 15-24m, thus, an open-pit scenario, big thick seams of sulphide mineralization, so we're just going to focus on what generates immediate equity growth. These are quite significant numbers. We have published historical numbers of 39m at 5g/t Gold and 1g Copper. This is a very rich VMS deposit, and that is the benefit for us.
Matthew Gordon: I wanted to understand how you dealt with those issues and legacy people and how much of a new story is there. And it seems to be completely new.
Gilbert Clark: We let go of the artisanal Manganese operation, that complex corporate structure. We cleaned that up and that was financed by the fund at the time. Now we're focusing on just Copper and Gold at the Cabaçal deposit. It is a predefined non-compliant mineralized envelope that we're going through now and make compliant and that's completely changed focus. We're not looking at a bulk commodity which is highly variable and costly, we’re looking at just Copper and Gold plus we have upside with the Silver, Lead and Zinc.
Matthew Gordon: It's early days, but in some ways, you’re ahead of the game. That seems to be what you're trying to tell me.
Gilbert Clark: Yes. We're weighing the game in respect of risk, and the entry point now for investment is fantastic. I remember the first meeting with investors back in 2018, it was very aggressive, and I said: we're just going to clean this up and then restructure it. The minorities gained ownership. You've got finance at USD$0.07.5c, another financing at 3 x that, at USD$0.20c, and now they can say: we're not going to risk your money or equities. We know where our defined targets are, and we know what our defined mineralized envelope is. Copper is a bread-and-butter commodity. Gold: these are strong commodities. We’re not doing new technology. That's not what I do. I'm not bringing in a new team of managers, we are continuing that execution that we had and restructured by the local team. We haven't done dramatic management changes, and the bulk of our management team is Brazilian. Work local, think global. That's what we've achieved in this company.
Matthew Gordon: I appreciate it your run through of the company. This is a new story to us. Come back and talk to us when you've done some of those things. I'd love to see how this progresses because there are some unusual advantages, but maybe starting from a low base, which I guess for people looking for leverage, it might be appealing.
To Find out more, go to Meridian Mining's Website.
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