Interview with Zeff Reeves, Managing Director of Tesoro Resources. Tesoro Resources Limited is an Australian public company with exploration stage gold assets in Chile.
Founded in 2017 by the members of the Board, Tesoro is focused on acquiring and developing high grade gold assets that have potential to be district scale mining projects.
Matthew Gordon: Zeff, how are you, sir?
Zeffron Reeves: I'm good thank you. I'm here in sunny Perth and just coming out of a big 3-day lockdown from covid. I’m a covid escapee, so it’s back to life as normal again in Perth, which is good.
Matthew Gordon: A lockdown: what was it, 1 case?
Zeffron Reeves: I think there were 2 cases. The government’s done a good job at keeping it well under control and keeping life as normal as possible here in sunny Perth and I am grateful for that.
Matthew Gordon: This is true. I appreciate you coming on. We spoke at the beginning of February. I wanted to catch up with you because there are a few things going on in the market. Obviously, Gold has come off a bit. We've been talking to lots of companies and trying to understand how they're dealing with that. Your share price has come off a bit since we last spoke as well. How do you feel about that?
Zeffron Reeves: Obviously, that is never a happy experience watching the share price come off, but the company is well-funded. We just took a large capital raising at the end of last year so we've sat down and mapped out what the next 12-18-months looks like for us. We’ve got a nice linear journey ahead of us growing the El Zorro project and taking it to its next stage of development, and that includes the calculation of a maiden resource estimate, probably around mid this year. We always get these little bumps in the market and Tesoro is in it for the long game. As they say, Rome wasn't built in a day, and we've got a project to deliver, a team that is well-equipped. We've been bolstering that team with the right expertise having come on board to help us take that project through that process.
As I said, we're well-funded now. These little bumps in the market; it's always disappointing for the share price, but at the end of the day, we've got a job to do. We can see a pretty clear pathway for us. It's basically nose to the grindstone and getting on with it, which has been good. The El Zorro project continues to deliver some fairly exceptional results and the more we know about it, the better it looks to us.
Matthew Gordon: I appreciate that. Let's kick off with a 1-minute summary for people new to this story, then I want to get into some of the other factors that we're seeing in South America, such as country risk, and political risk, etc. Can you give us that 1-minute summary and I'll pick it up from there?
Zeffron Reeves: Chile is a pretty nice place to do business for a mining company. Chile has long been a mining destination for international investors. Santiago is known as the Zurich of South America so all the big banks base their South American headquarters in San Diego. It's a very European-style city and the country is supported by terrific infrastructure, which we get the leverage off at El Zorro also. In terms of a destination to invest in and a destination for investing in the mining industry, I don't think you get a much better jurisdiction than Chile. It is very easy for us to do the work that we want to do. There is a very clear pathway in terms of permitting, mineral ownership and the like. As a comparison to Australia, you've got a major cost advantage in doing business in Chile as well.
Matthew Gordon: Can you give me a 1-minute overview of the project as well? That would be quite helpful.
Zeffron Reeves: El Zorro is a Gold project located in Region 3 of Chile, so it's about 100km north of Santiago. It's sitting in probably 1 of the best mining regions of Chile. There are a lot of Copper mines around us but we are a pure Gold project. It's right on the coast and, importantly, we're only 15km from the Pan-American Highway, 20km from grid power and 20km from the detailed plant. I liken it to trying to build a mine 50km outside of a port; we are well supported by infrastructure, not at altitude, near the coast, and what we're saying out of it in geological terms is an intrusive-related Gold system, completely new to Chile, which has given Tesoro a major advantage in looking at these sorts of things in the region.
At the moment we're focused on drilling out the Ternera deposit, and the more work we do on it, the bigger it's growing.
Matthew Gordon: You give us a summary of what the country is like, but are you at all nervous by some of the political ramifications coming from Peru, the sorts of conversations coming out of Mexico, we saw it recently with Ecuador? The political scene seems to be very socialist, that is making institutional funds quite nervous, isn't it?
Zeffron Reeves: It's interesting in Chile, it's now got a very stable legal system, particularly in regards to property and mining law. As an example, I think the mining code was established in the late 1920s during a democratic period in Chile's history. They went through a communist uprising during the 1960's, that law didn't change. Then it went through to a dictatorship when Pinochet was in power. Again, those laws remained the same. They are still more or less the same as they are today, backed up with an operating democracy.,
Some of your viewers might have seen some things in the press around Chile having some constitutional change, and from not only the legal advice that we get, but from the outside looking in, it's probably for the best. A lot of those constitutional changes are regarding the election of parliamentarians and the power given to the President. At the moment, it is a pure presidential democracy and ultimate executive power rests with the president to the point where they elect the parliamentarians, and they're going to more of a democratic system that has been proposed, such as what operates in the UK or Australia, where the regional parliamentarians are really speaking for the papal. We probably think that's a good thing, but we don't see any changes on that agenda in regard to property law, mining law, or basic constitutional rights in regards to ownership and doing business and so on.
Matthew Gordon: I get the establishment of all of the above, but is the intent there? Because some of the conversations we are seeing in some of the other South American countries; they're using mining as a pawn in terms of the electioneering. Is that something that is..?
Zeffron Reeves: I suppose that Chile is in a unique position compared to a lot of those other countries. The world's largest Copper producer is a company called Codelco, which is 50% owned by the Chilean government. Major shareholders of big Copper producers are probably loathe to change the rules on themselves. We see a lot of support from the government in regards to the mining industry, and that's not to say that they're constantly working to be best practice in the world for various aspects, and we expect that, but in terms of investment and the base case for wanting to attract investment into the country for mining and doing business, we don't see any major changes ahead of us. Obviously, there's a boom in the Copper price at the moment so there are a lot of eyes on Chile, particularly from the larger mining houses around the world to try and get their hands on assets in Chile. As I said, it’s a good jurisdiction to operate in. It's got world-class assets.
Matthew Gordon: So no talk of nationalism, repatriation; we're open for business and big business is coming in?
Zeffron Reeves: Absolutely. As I say, the revenues that are generated from the mining industry are being pumped back into those regional areas. As an example at a local scale for us, we have a really good relationship with the Director of Mines for the government for the region, and all they want to see is another mine be built, people to be employed and revenue generated for the region and for Chile. That being said, Chile is an attractive destination in addition to that because of the tax regime. There are no royalties or minerals as such. When a mine is built and it starts recording profits it is taxed at the Chilean corporate tax rate, which is around 23%.
Matthew Gordon: You started this off as a private venture before taking it public. How much does this company represent for you in terms of your personal wealth? Is this a significant commitment from you? How much money have you put in?
Zeffron Reeves: Yes, Geoff McNamara, who is the non-exec director of the company, and myself and or general manager in Chile, Sergio Uribe, we founded the company back in 2017. We put our heads together and put in a bit of capital initially, and we had identified El Zorro, we put money in there and executed the deal on El Zorro. Since then we have contributed around AUD$2M between us into the company in the early days, well before we even drilled. We also did a couple of rounds of capital raises as a private company. But prior to listing, between ourselves and raising from external funds we put about AUD$3.5M-4M into the project. We'd really broken its back in terms of the conceptual understanding of the geology and we really knew that there was something significant there before we came to market.
In terms of what it means for myself and my co-founders, we've got a significant amount of skin in the game as they say. Currently, we own about 15% of the company, and we are in it for the equity rewards, we are not in it for salaries. Everyone's working really hard at getting the milestones met where we get rewarded a little bit more. At the moment, the project is delivering and we can see those milestones; they're not in the distant future anymore as they perhaps were in 2007, which we’re quite pleased about.
Matthew Gordon: What does that mean? How do directors of companies remunerate themselves in terms of, if you hit certain targets you get rewarded by x - how does that work?
Zeffron Reeves: Generally, a common metric for measuring the value of a Gold company for example, would be resource ounces in the ground pre-production. We've aligned ourselves with our shareholders and are creating value for our shareholders and we will get rewarded by delivering resource ounces in the ground at El Zorro and also for delivering a Feasibility Study. A positive Feasibility Study is something that would be financed and he built.
Matthew Gordon: You need this company to be a mine. You need this company to work. This is not a lifestyle thing for you?
Zeffron Reeves: When we set up Tesoro, for some background on us: we're all production guys. Geoff and I are ultimately, back in the day we were production guys. We met at an underground Gold mine and we were in operations there in Western Australia. We've worked in the mining industry for almost 25-years where we worked with projects from all aspects: from discovery through Feasibility, building them, running them and even working quite a bit for the administrators on various projects as mines were wound down, or recapitalized. But ultimately, we are production guys.
Part of the reason for focusing on the coastal area of Chile, and looking around where there was good support and infrastructure was looking to find deposits of a scale and grade, where it's not inconceivable that a junior could come and take them from discovery through to production. You are able to leverage all that infrastructure, you haven't got expensive exploration because we're not at altitude, we are at more or less sea level. Our guys get to live and sleep in the town up the road so we don't need to build camps and all of these sorts of things.
I think the proof is in the pudding with our recent financial results in terms of our spend in the ground. We are spending about 87% of our money. Our burn is going into the ground. At the moment, our All in Cost for drilling is around USD$150/m for HQ core, which is quite astounding. As a result of that, we were able to devise the strategy that Tesoro was set up to find a future mine. I believe with El Zorro we've got a future mine on our hands.
Matthew Gordon: If you look back at last year, you did quite well last year. I think you're well-received in the market. You did okay but a lot of companies did okay. How do you feel about what you are trying to be versus what you saw last year? There seem to be a lot of companies getting funded which don't have what you've got, but getting rewarded the same way, do you care?
Zeffron Reeves: I try not to look over the fence at the other companies. I’m very focused on delivering Tesoro’s shareholders value out of El Zorro. As I said at the beginning, we have a pretty linear pathway now. We know we’ve got a real project on our hands. We don't know how big it's going to be, but certainly, it has the makings of a mine. We try not to compare ourselves to others and there are only so many things you can control, and they're all internal, all the external stuff, we have the benefit now of being well funded so that we can plan and have control over a lot more things.
Matthew Gordon: I saw on the PowerPoint, I don’t know if this is a typo or something, but you've currently got 4 rigs turning 24/7. Really?
Zeffron Reeves: Yes, we just put another one on site last night, so we actually have 5 running now, which is good and we're probably looking at putting another 1 on as well. The impetus for that and for getting more rigs there is that when we first got involved in the project and, I think probably talked about this a little bit later in terms of our ownership structure, but we looked at El Zorro and thought this would be a nice and neat little Gold project, maybe 300,000oz-400,000oz, coming into production at a fairly light capex and use it as a stepping stone to organically grow the company into another asset and so on. Then we got on the ground and started doing the work and it's just orders of magnitude expanding the more work that we've done. As a result of that, what went from an initial 30,000m drill program that we be budgeted for at the end of last year, we're about the budget another 35,000m to 40,000m of drilling just for infill drilling and resource definition, simply because the step-out holes are so well-mineralized, we've got holes in between that are well mineralized we need to drill now to get into the resource. Really, the foot is flat to the floor to get as many holes as possible so we can get hopefully what will form the basis of a Scoping Study of a maiden resource out by just post-mid-year.
Matthew Gordon: What will that do for you? Why is the market going to care about that?
Zeffron Reeves: We next need to demonstrate that there's a real project there, and we're already working on Scoping and Engineering Studies as well. Once we have a resource published, then the market has got some real metrics that it can sink its teeth into to provide a valuation for the company, plus see the exploration upside. There are lots of targets outside of Ternera that we haven't even drilled yet with surface Gold mineralization in basically outcropping rock. We're pretty convinced that this is a big district, but we are just focus on delivering that resource that can then have some engineering wrapped around it, start the permitting processes and so on to get the mine permitted in Chile, which again, is a fairly linear straightforward process, but it takes time, right?
We're working on a number of fronts in parallel with one another to be able to deliver the project as quickly as possible. The sooner we can paint a picture of what El Zorro might look like from a resource size, geometry, all of those aspects, then I think the market will start to take notice that this is a new project in a world-class jurisdiction. It’s a very easy place to go and build a mine: it’s right on the coast next to a port with all these different options around it in terms of electricity, water, etc, which is quite a luxury to have in Chile. Then the market will be able to see: these guys are going places and there's plenty of grade to be had.
Matthew Gordon: The Resource comes out mid-year, hopefully the market reacts to that, and then what? When are you guys looking to check out? I know you are mine-builders, right? But given the current market conditions are you looking for strategic partners? Can you do this yourself? How long is it going to take? Because we see a lot of stories coming in here and it just seems very short-term; they are looking for quick wins. Are you looking for quick wins? What are the quick wins?
Zeffron Reeves: Well, I don't think there are any quick wins in the mining game. This is a medium to long-term story. We have a team that has been able to deliver results so far pretty quickly, in just under 18-months since we listed. We’ve drilled 40,000m and we are starting to see a major deposit emerge. As I said, we are starting that background work to be able to deliver a project. The base case for Tesoro has always been to build a mine.
Sure, we're going to attract the attention of other companies in Chile, but sometimes the juniors and the smaller companies are a bit more nimble and more innovative and tend to make the discoveries. At this stage, we're well-capitalized. We're not looking for a partner at this point. I'll never say never, but again, I’ll emphasize the fact that we set the company up to build a mine. We are seeing a mine emerge in front of us at El Zorro, so we've got a lot of work between now and doing that, but as I said, it's a fairly linear pathway for us and we're just going through that process and continuing to grow the business.
Matthew Gordon: We're seeing the majors shoring up their balance sheets. The producers have been taking advantage of Gold prices for the last 12-months or so. It's got to be tempting. It's got to be an easier path for you, surely, just to set yourselves up for some inevitable M&A activity in this space. And if you are, then you have to behave in a different way. You've got to deliver different sorts of activities and numbers in the market.
Zeffron Reeves: I think the underlying goal is always the best outcome for the shareholders. The board is seeing amongst the major shareholders that they are always going to do what is best is for the shareholders. As I said, we haven't had an approach like that at this point in time, so it's not even in the psyche. We are focussed purely on delivery what's ahead of us. Again, there's a whole lot of things that we can control and all these little external things that happen from time to time, we don't have any control over those. We can manage them if it's negative, or take advantage of them if it's a positive. We'll just keep pushing on and the project continues to deliver. It has so much going for it and the advantages of the things that are going for in terms of geology, location, metallurgy, etc is going to provide optionality in any mining scenario, which is going to reduce that cost. You were talking about how there's been a blip in the Gold price in the last few months, we've been mining Gold since the late ‘90s and I think anything above a USD$1,200 Gold price is a boom price in my eyes due to the scale of my career.
Another reason that I think Tesoro is attractive when compared to our peers is that we look at companies here in Western Australia and you get above a USD$1,500 Gold price and the same old projects get wheeled out again. They get Feasibility to death and they still don't work. We're unique in that regard. This is a purely new discovery, and if we can't make money at USD$1000 Gold price, then maybe it's not the right project.
Matthew Gordon: It's interesting; there seems to be a lot of re-tread projects out there at the moment where they're on their 3rd or 4th go. I
Zeffron Reeves: There are some good examples that have just been announced over the last few months on the ASX, where they have redone a Feasibility Study, and surprise-surprise, at a USD$1,700 Gold price it is still not working. When you have to rely on Gold price and exchange rates to make the project work then it's probably never going to work. We like to rely on the fundamentals that underpin the project, which are scale, grade, operating costs and capex, all those things tied together ultimately build a robust project. We may get some money taken off the table due to the operating environment because of the exchange rate, or we might get some more footing because of the exchange rates and so on. But relying on it to actually make an investment decision, I think is fraught with danger.
Matthew Gordon: I completely agree. We just put out a report on a company with nearly a USD$1Bn market cap, and they need $1,800 Gold just to break even - interesting times.
Zeffron Reeves: There are a lot of those in Western Australian. If they are not going to work now they will never work. El Zorro is not one of those.
Matthew Gordon: El Zorro is not one of those - no, I don't think it is. We I think it's important to help investors work out what to be looking at, where to be looking, and help people make their minds up about their investment decisions. Zeff, I appreciate your time today. For anyone who wants to see the backstory to the assets, we've done a couple of interviews with you over the past year, which we will put links to below. People can go and see what you've been doing and how you've got to this point. Stay in touch. Let us know how you get on. You've got the money to do it and I'm just intrigued by the way that you go about doing it. Thanks for your time.
Zeffron Reeves: Thanks, Matt. Great to be back.
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