Transcript: NorthIsle Copper & Gold (NCX) - Ambition, Scale, Timing and Financing

April 26 2021, 10:47 GMT+01:00

NorthIsle Copper & Gold Inc.

  • TSX-V: NCX
  • Shares Outstanding: 146.42M
  • Share price C$0.29 (22.04.2021)
  • Market Cap: C$41.73M

Interview with Sam Lee, President & CEO of NorthIsle Copper and Gold (TSX-V:NCX). NorthIsle Copper and Gold Inc. is a Canada-based mineral exploration company.

The Company is engaged in the exploration and development of its North Island Project on Vancouver Island. The North Island Project claims are located on northern Vancouver Island from 15 to 40 kilometers southwest of Port Hardy. This project contains various copper-gold porphyry systems. The primary metals in the North Island Project are gold, copper, molybdenum and rhenium.

We Discuss:

  • 1:50 - Company Overview
  • 2:40 - History & Background of NorthIsle
  • 5:32 - Lots of Potential, so Where's the Disconnect?
  • 11:35 - Board & Team Experience, Remuneration, & Shareholding
  • 15:20 - Business Plan, Model, & End Goal: Strategies for Projects
  • 20:44 - $10M Raised & Plans for Allocation: Why More Exploration?
  • 26:41 - Options for Growth & Value Creation
  • 28:41 - End Thoughts: Importance of Sustainability

Matthew Gordon: Sam, how are you?

Sam Lee: Very well, Matt, how are you?

Matthew Gordon: Not too bad. Where in the world are you speaking from?

Sam Lee: We’re speaking from sunny Vancouver, not so sunny now given that it’s 5.30am but we’ve had a good run of sunny days over the past while.

Matthew Gordon: Fantastic. I appreciate the effort. 5.30am is never nice. I hope you’ve got lots of coffee in you.

Sam Lee: It’s my pleasure.

Matthew Gordon: Great. Look, we’ve not spoken before. We’ve not had a conversation. I haven’t heard the story before, so I’m keen to understand it better. Before we do that, why don’t we kick off with a 1-minute summary of what it is that you’ve got there, and I’ll pick up with some questions?

Sam Lee: Sure. Here at NorthIsle, we are setting out to be the leading sustainable mineral resource company for the future. We own a 50km stretch of a Copper-Gold porphyry trend on Northern Vancouver Island. We just released a PEA that suggests this project has approximately 5Bnlb of Copper equivalent. If you want to look at it from a Gold equivalent perspective, it’s got about 9.3Moz in Gold equivalent. Approximately 22-year life-of-mine, 150Mlb of Copper equivalent production per year for 22-years, and approximately, if you want to look at this from a Gold perspective, 300,000oz of Gold equivalent per year.

Matthew Gordon: Right. Those are some pretty big numbers you’re throwing around there off the back of the PEA; $44M market cap, there’s a disconnect somewhere.

Sam Lee: Indeed. That’s what Nick and I are here for. We joined the company just a few months ago. I think this asset was almost purposely orphaned over the last 9-years as the Copper markets retracted. This is a very strong project that was put together by a gentleman named Jack McClintock who was responsible for discovering Spence for BHP, and our chairman Dale Corman who took Penasquito, developed it, through to Feasibility Study and sold it to Glamis, now Newmont, for over $2Bn. Certainly, now is the time for NorthIsle and our job is to advance this project as quickly as possible.

Matthew Gordon: When you say now is the time, what were Jack and Dale doing? The PEA has some really big numbers in it but no one’s listening it seems. What were they doing? Were they busy with something else?

Sam Lee: This asset evolved quite substantially over the past 9-years and many people don’t know this, but Jack discovered Spence, which is a very significant deposit for BHP. It’s currently producing on a $5M shoestring budget. Over the last 9-years, Jack took this extremely tight behaviour around exploration and put together the Hushamu Deposit with another higher grade, lower strip deposit called the Red Dog Deposit, and he put that together and wrapped around a PEA in 2017 before more metallurgy that improved the recoveries, especially on the Gold side. He ended up doing a joint venture with Freeport on a satellite deposit called Pemberton Hills, which has some very strong signatures around a much higher-grade, lower deep Copper porphyry system just adjacent to our project. That’s effectively facilitated a lot of the exploration activity that he pursued over the past few years. The way I like to describe it is that Jack and Dale literally just served this up to us on a silver platter. Obviously, timing is everything and we are coming into a very strong Copper bid right now. This project is a good project at $3 Copper. It’s a very good project at $3.25 Copper, which is what we established the PEA on. For every $0.25 increment in Copper price, the NPV rise is about $300M. Right now, Copper is at about $4.25, that’s $1 above the current cost of the PEA, so you can do the math.

Matthew Gordon: We did do the math before we came on. I understand potential but people come on here every day and talk to me about potential. You’ve actually got to deliver it and that’s the difficulty for junior companies. Again, if I look back at your share price, it’s been on the rise. If I look back to June/July of this year, you were sub-$0.10. You’re up around $0.30. It’s great, but Copper price has done all that work for you, right? Even when the PEA came out, it wasn’t that much of a change in trend. It wasn’t a hockey stick type of response from the markets. I’m trying to understand if the market knows something that I don’t. Is a project on North Vancouver Island a problem in peoples’ minds?

Sam Lee: That’s a very good question and it certainly does have a stigma because people associate Vancouver Island with lots of trees and vegetation, a beautiful environment, which it absolutely is. All of BC is, quite frankly. But the fact of the matter is, we are on the northern tip of Vancouver Island. Vancouver Island is bifurcated. You think of it as Campbell River dividing the south and north. We are literally on the most northern tip where there has been a tremendous amount of industrial activity. BHP owned and operated the Island Copper Pit, which is just adjacent to our mine. It’s about 24km away from our property. This deposit had all the same signatures, same types of concentrates, same types of mineralisation, very similar size to what we’re contemplating, very similar grades to what we’re contemplating. That was in production for 24-years. All of that infrastructure still exists today. There was a permitted deep seawater port, again just 25km away from our project. This port was used by BHP to ship their high premium Copper and Moly concentrate to Sumitomo, which they require and pay for premium concentrate with low deleterious elements, low Arsenic, high concentrations of Copper and Gold. So very high premium-quality concentrate that we believe our project has, given that it’s an extension of the BHP Island Copper Pit. I think one of the most - you’ve pointed on it exactly - there is a disconnect between the idea that we have this project versus actually developing it through these stage gates. 

The first thing that I did when I joined in October was to recruit somebody that had the gravitas to actually provide that credibility as we go forward. I think I found probably the perfect person in Kevin O’Kane. Kevin spent almost 40-years at BHP, 37 of those years were spent developing some of the most formative mines in the world, operating and expanding Escondida, Spence, Cerro Colorado, but interestingly enough, he was the chief mining engineer for this Island Copper mine that sits adjacent to ours. He spent 13-years living in Port Hardy and 2 of his sons were actually born in Port Hardy. He loved the community and the experience. This mine for BHP was noted as the school of mines for that organisation so to speak. There was certainly an affinity for him to come back home and to join us. He’s on our board. And to effectively set out the nucleus to show that we have the core ability to develop this through the stages and potentially into production.

Matthew Gordon: Right, but to answer the question, does the market know something that I don’t in the sense that, are people against mining in Northern Vancouver Island? Has BHP left something behind that left a sour taste in the mouth, or are environmental permits going to be easy to come by because you’re talking the language of sustainable mining?

Sam Lee: I think those are absolutely 2 ends of the bookends right there. The answer is absolutely, the community is very supportive of this mine. They remember this mine as being very positive for the general community. Port Hardy, which is only about a 20-minute drive from the Island Copper Pit, and about a 30-minute drive to our property, is known for mining, fishing, and logging. Western Forest Products owns all the surface rights as it relates to the logging. They’re currently active. There are other mines, active mines, in the vicinity that obviously use Port Hardy and Port Alice as part of their focal point. Then probably the most important answer to your question is First Nations. How do they believe what happened at the Island Copper Mine and what potentially happened at our project? Do they believe that there’s a net benefit to their communities and their nation? I can say that they certainly have been supportive of our project moving ahead. They certainly have been supportive of the infrastructure that BHP left. They purchased the surface rights for the Island Copper Mine, but for the mine and the foreshore, for which we are contemplating using as part of our PEA. Certainly. Our efforts moving ahead are going to be laser-focused on developing that relationship with all 3 First Nations groups that are involved.

Matthew Gordon: Right. Let’s talk about the project then. You arrived in October; you’ve made some hiring’s to enable you. Let’s talk about the board. We’ve talked about Dale and Jack. Obviously, they founded this thing, but we need to move this thing forward now. You need to move this thing forward in the eyes of the market. What’s the plan?

Sam Lee: That’s right. We are continuing to grow the team. Nick Van Dyk was the next hire that I focused on. Nick has a very similar background to me. I spent over 20-years in investment banking; I’m a metallurgist by training. Nick spent 10-years as an investment banker and publishing analyst. He then moved over, saw the light, and became an executive at Polaris. The significance of that is Polaris owns the rock quarry just south of our mine and deals with one of the First Nations groups that we are looking to deal with as well. Nick really has developed not only relationships but an understanding of how to do business in that region. Communications, community relations, First Nations, targeting - that is absolutely critical in answering your question around developing this mine. I truly believe if you can address the question around reconciliation and water quality then the permitting process for any mine in BC gets enhanced. I think as we continue building off of this nucleus, we have to now focus on the environmental, social, and sustainability factors of this project. I think you’ll see hopefully in short order some developments around that front. 

Obviously, financing is going to be critical as we go through the stage gates, but I’d like people to think about this the way we think about it, which is that at every different point of every stage gate, we will have to make very informed capital allocation decisions and then find out the least dilutive way, lowest cost of financing option to satisfy each stage gate as we move ahead. It’s not a $1Bn Capex of $1Bn raise we need to do when we’re a $50M company. We’ll do the appropriate raise as we have done over the past 4 or 5-months since Nick and I have joined in a disciplined manner and a manner that’s least dilutive to shareholders. It’s very important to note that we’re all in this together. The management team owns approximately 19% of the outstanding shares on a fully dilutive basis. It’s about 23%, and I think the rationale that I bring that up is that I’m not taking a salary for the first year. I’m fully vested in this. I’ve bought 2M shares of my own, using my own money, and I fully get paid in options. My options were priced the day I started and that makes me completely levered to this story alongside every other shareholder. Our chairman is our largest shareholder at approximately 13%. From our perspective, it is absolutely imperative that we choose the lowest-cost financing alternatives for every stage gate, and part of that equation is to have a very disciplined capital allocation program.

Matthew Gordon: I hear you, but I also hear that every day of the week. I also hear the sustainability argument every day of the week. I’m interested in what the deliverables are. I get that you’re not going to dilute shareholders. You’ve put your own hard-earned money into this thing. I get all of that. I’m more interested in how you move the story forward. You’ve got the PEA now, some big numbers in there. There comes a point when it stops being about the numbers but is about working towards the economics of those numbers. Can you show that you’ve got an economic, viable project? As you say, it’s a medium-sized project. It’s not a behemoth scenario where the majors are going to come piling in here. But it’s going to be attractive to 15 or 20 companies out there. Is that the name of the game for you? Make this attractive for someone else to walk in with their balance sheet and get this thing going? Or are you the guys to take it into production?

Sam Lee: I’m a very firm believer that you can only control what you can control. My background is in M&A and financing. I’ve done over $100Bn of these things. I’ve seen hundreds of projects that work, and that don’t work, through any parts of the cycle. Part of that information has informed me to land on this project. I absolutely believe this project is developable. Our PEA suggests that it is a very good project; at $3.25 Copper, this project is a CAD$1.1Bn project. It’s approximately 19% IRR, which for a 22-year mine life project is a very respectable IRR. Don’t think of this as a 5 to 8-year Gold project. Think of this as a robust 25-year+ project. The economics today suggests that this is something that should be moved to the next stage gate. It is potentially the lowest-cost project out there, and that’s because of the infrastructure that is in place today because of BHP’s Island Copper Pit. 

It’s also because we have one of the lowest strip ratios. The project’s strip ratios are approximately 0.7. It’s informed by the first 6-years, an asset called Red Dog, which has less than 0.2:1 strip ratio. This project has a lot of significant factors to it that make it economical and certainly worthwhile advancing to the PFS. The third part of the stool is the exploration portion of it, which we’re aggressively pursuing today. We’ve got 3 pillars to that strategy as well. The first is our blue sky, Greenfields exploration through our Pemberton Hills project. This is a project that has a lot of similarities to the Timok project in Serbia, which was owned by Nevsun and Freeport, and most recently sold to Zijin for about $1.5Bn. This area was an area that we had a joint venture with Freeport. We’re now doing the drilling ourselves. We’ve just raised $10M. A portion of that is going towards drilling out this and seeing what we have. This could be a potential game-changer for the company. The second strategy is to enhance our project. We’ve got this higher-grade, lower-strip portion on the Red Dog project. We’re going to focus our drill exercise on that over the next few months. The third is to expand out Hushamu, which is in our view the low-hanging fruit, and very easily expandable to a size that will attract the majors and get us to over 1Bnt of resources. I think all 3 strategies inform our overall strategy around the project, but also on the exploration side around Pemberton Hills.

Matthew Gordon: Right, so you’re just keeping all options on the table. That’s what I just heard. 

Sam Lee: Optionality is worth something my friend and that’s something Nick and I are very familiar with.

Matthew Gordon: Okay, fine. But give me a sense of what the ideal scenario looks like. You’re not mine builders. Is anyone on this team a mine builder?

Sam Lee: Kevin is probably one of the most impressive mine builders that I’ve met. 

Matthew Gordon: But he’s on the board. Is he doing anything? Is it just like a name check?

Sam Lee: We are absolutely run like a junior company in the sense that it is all hands on deck. Everyone has to do everything. I’m the CEO but I do everything from investor relations, to finance, to engineering. I try to leverage my metallurgy background because that’s a big component of the story. Kevin has stepped down so to speak and led our technical team around certainly the progression of the project through into PEA. He’s also leading our discussions, probably most importantly, with BHP. He has obviously got a significant pedigree within that organisation and brings that level of credibility for us as we go through and talk about using their infrastructure.

Matthew Gordon: Right, so you’ve just raised $10M circa. How are you going to spend it? You’re going to spend it wisely and frugally, in as less a dilutive manner as possible. What exactly will you be delivering for $10M? How long is that going to last you? Where does it get you?

Sam Lee: That’s the capital allocation question, which is as important if not more important than the dilution question. The capital allocation as we see it right now, as I described it before, spending approximately half of it in exploration to see what we have as it relates to the Greenfields stuff, but more importantly, to inform some of the trade-offs as it relates to the project. We have a larger deposit called Hushamu, and we’ve got a smaller, higher-grade, lower-strip deposit called Red Dog. Of course, we would put the infrastructure around the larger deposits, Hushamu. If we start finding what we think is there around Red Dog, then that would actually inform where we put the infrastructure. All that ties into the critical path items around developing the project. We should have a very strong understanding of what we have at Red Dog by the end of the summer that will inform again that critical path to where we place our infrastructure as part of the PFS. The good news is that none of the work that we’re doing today to advance the PFS is dependent on that information. We are progressing it. We’re hitting the button today to get all of the lead time activities done prior to having these larger decisions, these trade-offs, implemented as part of the scope of the PFS.

Matthew Gordon: I’m intrigued by that. You’re going to spend half of the money that you recently raised on doing exploration. I’m looking at this thing going, you’ve got enough Copper and Gold, maybe you want to move it from inferred to indicated, that might be a really good use of money. But going and finding more pounds? You’re going to get to that point where you’re going to become unattractive to people because they’re never going to be able to afford to do the development into production because there’s going to be a big Capex number associated with this. Why have you chosen to do more exploration and find more pounds?

Sam Lee: That’s a very good question. Part of that is my personal belief in Jack McClintock. I’ve been looking for many months if not years to partner up with an exploration geologist, a project geologist, of Jack’s calibre. Jack spent many years with Rio Algom and BHP. He discovered the Spence Deposit, from which BHP is currently producing 230,000t of Copper a year. A very significant project. He’s one of the best as it relates to Copper-Gold porphyry systems. Over the last 10-years, the company through no fault of its own was completely under-capitalised. Whilst Jack discovered BHP on a $5M budget, he did not have the luxury of riches over the past 10-years around this deposit. We have a 50km strike length span reach starting from the Island Copper Pit around unexplored territories that Jack has spent many years triangulating on, on the most appealing targets. When I joined, I was committed to understanding what we actually have as it relates to the exploration package. Again, that is going to inform how we move ahead with the contemplated project and how we move ahead with the company as a whole. I think that from a strategic perspective, it is always helpful to get as much information as you can, especially when there wasn’t very much information initially on the prospectivity of the area. 

I do put my faith in Jack, certainly. As a CEO, you need to put your faith in the team members and I do think he’s a wonderful exploration geologist, but I think we’ll have enough information from this program to inform us as to how much we have at Red Dog, as to whether or not the philosophy at Pemberton Hills is intact, and on the Hushamu side, if that’s what we categorise as almost the low-hanging fruit given that this Copper-Gold porphyry is tilted to its side. All the step-out drilling we expect is going to just continue the deposit to the southeast. Growing that tonnage to over 1Bnt is reasonably expected, and then the rest obviously informs different parts of the strategy. Once we have that in place then we’ll have the full confidence of where to be putting the mill, the tailings facility, etc. 

Matthew Gordon: You’ve explained why you’re doing it. It just feels like Hushamu is obviously the most advanced, and Red Dog, and we’re talking about what you do with Pemberton. Right now, in terms of the money raised at the price that you raised it - in fact, what did you raise it at? What was the price?

Sam Lee: When we started the company, it was about a $10M company. It was trading at $0.12, which is what my options are priced at. The average price that we raised, so we essentially raised the market cap of the company over the past few months and the average price was about $0.27. I think that demonstrates our ability to do, not non-dilutive financings, but certainly getting the best price for the levels that we need at the time.

Matthew Gordon: It helps. I guess this comes down to more data is more data. That’s always good and you can make better decisions with more data. But timing is also really important. What were the other considerations in terms of how you spent this money, which you raised at $0.27, versus the value you’d create by doing it a different way and raising more money for exploration at a higher rate further down the line? The exploration isn’t critical to today’s value creation process that you’re going to go through, is it?

Sam Lee: I think it is otherwise we wouldn’t be doing it. That is absolutely the critical question around capital allocation. To put it very simply, Pemberton Hills could be a game-changer. This could be an absolute world-class deposit that every single major in the world would be interested in if we prove out the theory. Red Dog, if we move it from 50Mt to 200Mt - 300Mt, which is the goal, don’t know whether it’s going to happen, that completely changes the proposition of the project. As we all know GT Gold, it’s a similar style deposit but they’ve got this higher-grade lens that goes deeper, which creates more of an open-pit underground scenario, which is what attracted Newmont to effectively make a bid for them for $500M. Then at Hushamu, as I just said, to be able to reasonably, easily grow that tonnage by 25% - 35%, why wouldn’t you do that? It does create that attractiveness around breadth and scale to anybody who’s looking at it. Majors, intermediates, investors, and the like. I do think very strongly that the capital allocation decision around these programs is extremely well thought out and potentially provides incredible, immediate value to the shareholders, which is why we’re focusing on it. 

Matthew Gordon: Why don’t we leave it there? I think you’ve articulated and dealt with some tough questions with regards to why you’re doing things in the order that you’re doing them. We can talk about the project at another date but I’m more interested in you. You’re the new guy on the block, you’ve made some hires, and I’m intrigued as to what you’re setting out to do and whether you’ve got the strategy right.

Sam Lee: Thanks for that. I do appreciate these questions. They are good questions and ones that we obviously as part of the management and the board contemplate on a daily basis. I think one element that you don’t focus on and perhaps we focus on more than any other junior company than I know of is this idea of sustainability. I know that it’s something that’s thrown around a lot. I know that there are bold goals within the junior and also the senior space around Carbon neutrality over the next 10, 20, 30-years. I absolutely applaud these bold goals because without goals, what are we? What can we achieve? Having said that, in my mind, the absolute premise behind Carbon neutrality is access to clean, renewable power. It has to be cheap obviously to make a project economical. Here in BC, we have access to 100% Hydro and Wind Power. Our project actually has BC’s largest Wind power farm to the north of our project, which has more than enough capacity to satisfy our project requirements. We have the ability to contemplate electrification of haulage trucks, with trolley assist obviously because we’re an open-pit mine. We need the right contours to have the ability to access this, which again is all going to be contemplated as we progress this into the Pre-Feasibility and Feasibility. All of this is front and centre as it relates to our philosophy, our belief system, and for fun, we actually put in our press release some Carbon metrics. For us, we’re not saying that these are the best metrics in the world but at least it references where we are today and where we need to get to in the future. Having access to this clean and cheap power, $0.07 a kilowatt-hour power in BC, the intent of creating a project that has a low footprint and that could potentially be Carbon neutral net 0, is something that is entirely within our purview over the next few years.

Matthew Gordon: I get it. Again, it’s a thing that people do talk about and I think Canada is blessed with a lot of Hydroelectricity and it is cheap, and people perhaps even get a bit casual about it. They use it and they have it. They don’t extoll its virtues like you’re doing. I think with Copper, you’ve almost got to because you’re talking about feeding into an electric revolution. You spent a few pages on your PowerPoint talking about the EV thematic and the need for large Copper discoveries because of that. That whole supply chain needs to deal with CO2 emissions and whether it be mining, whether you can sequester some of that, or whether you can do more as an industry to reduce your own emissions is great. I salute you that you’re measuring it and you want to be judged on it. Maybe more people should do that too. I hear you. Thanks, Sam. I appreciate your time today. Stay in touch. Let us know how you get on. Interesting project.

Sam Lee: Thanks very much, Matt, for that. It was a great interview. I just want to leave you with a couple of thoughts here in terms of how we think about the project. One is that this is one of the most developable projects that I know of, certainly in Canada and potentially in the world. It’s a project that we are committed to the highest standards of sustainability, and we are committed to our First Nations partners and community partners. That’s going to advance along very quickly. We’re also spending a lot of time on the drill bit to ensure that we are enhancing value immediately for shareholders and then of course we’re always going to take a very disciplined approach around not over-dilating our shareholders at any given point of our capital strategy. With that, thanks again for the opportunity to speak to your audience and I really look forward to talking to you soon.

To find out more, go to NorthIsle Copper and Gold Website. 

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