Interviewer: Hello, this is Harry Norman for Proactive Investors and welcome to another Proactive audio interview.
Today is 26th May 2010 and I’m talking with Jonathan Beardsworth, Managing Director of Metals Exploration, listed on the AIM Market, Mining Sector. Stock Ticker MTL. Share price 10.5 pence. Market cap 28.32 million pounds Sterling.
Web address: www.metalsexploration.com
Jonathan, thank you very much for joining us for this interview.
Jonathan: Harry, always a pleasure.
On May 4th Metals Exploration released a resource update for the Runruno project which included 780,000 ounces of gold in Proven and Probable Mining Reserves. Do you think the market has factored these Mining Reserves into its valuation of the company yet?
Well, sadly, absolutely not and the reason is as follows.
This announcement of 780,000 ounces in the Proven and Probable category which is a Mining Reserve, is a landmark event for the company.
Now, the whole point about a Mining Reserve is that that is as secure as you can get about what is actually going on inside the ground, up until you get a bar of gold in your hand. People talk in terms of perhaps getting 20 or 30 dollars an ounce, for Inferred ounces, and 40 or 50 dollars an ounce for Indicated ounces and 80 or more dollars an ounce for Measured ounces, but for the Mining Reserve you should be in the 100 ounce plus category. And if we’ve got, as we have, 780,000 ounces in Mining Reserve, valued at $100 an ounce that would give us a notional market capitalisation of $78,000,000. Whereas today it is just under 50 [million dollars]
So, if the market was adequately representing that valuation, we should see an uplift today of 50, 60, 70% in our market capitalisation just on that single factor alone.
Well what the Feasibility Study shows is that we have an absolutely viable project at Runruno. And again, rather like the announcement of the Mining Reserve, this is a landmark event for the Company.
And in particular since six months ago, we disappointed the market, because we produced a resource update that showed we had fewer ounces of gold than we had anticipated beforehand, and so I think over the last six months or so, there has been a concern in the market, as to whether we still had a viable project going forward.
Well, what this feasibility study demonstrates is that absolutely we do.
Why were the molybdenum credits excluded from the Feasibility Study and do you plan to just ignore the molybdenum Jonathan?
The reason that the molybdenum [credits] were excluded from the Feasibility Study, is because in order to qualify for inclusion it has to be within that tolerance of plus or minus 10% of absolute certainty, and we can’t say that about the moly at the moment.
We still are confident that we will get the moly into the project. Why was it not included? Because the total focus to date has been on demonstrating that we have a viable gold project, which we do.
What the moly provides us with, potentially, is substantial leverage. Total gold numbers at the moment are coming in at about $477 per ounce - that’s just under the middle of the gold cost curve. So that’s a really solid place to be for us as a gold project, and particularly against gold prices north of $1000 an ounce at the moment.
If we get the moly out, at 45% target recovery levels, and if we can do that, the beauty of the moly, is that it provides great leverage to the economics of the overall build project.
Then at today’s moly price our net gold cost prices go down to about $350 an ounce. So it’s a huge leverage difference that the moly potentially gives us, and we do believe we’re going to get it back.
Who is Dr. Eric Jensen and why is it significant that he says that the Runruno gold deposit is remarkable in terms of it’s similarities with Cripple Creek in Colorado?
Our project has both gold and molybdenum as we’ve just been discussing, and this is extraordinarily rare. There are very, very few gold moly deposits in the world. In fact so few that when our geologists were looking for analogous deposits, the only one they could come up with was this Cripple Creek deposit you’ve just mentioned.
Now, Cripple Creek is a gold mine that’s been going for over 100 years, it’s produced over 20 million ounces of gold in its time. And so we got in touch with the person who is the acknowledged expert on Cripple Creek, who is this guy Eric Jensen.
We got in touch with him and said “Look, Eric we’ve got a deposit that we think is remarkably analogous to Cripple Creek but we’d like you to come along and have a look at it.” And so he duly spent a couple of weeks with us crawling all over the volcanic dome and indeed produced us a very nice report, in which he says that “Yes, it is an analogous to Cripple Creek and more than that, that the potential for discovery of further mineralisation seems obvious.”
What is Metals Exploration’s financial situation going forward?
Our financial situation is pretty solid at the moment. This time last year we raised £12,000,000 largely through the good offices of Chris Candy our major shareholder, who contributed £8,000,000 of those in addition to the three and half that he produced earlier in the year, but also being well supported by other shareholders.
That £12,000,000 allowed us to commit to completing a detailed Feasibility Study despite the prevailing economic conditions at the time.
As we got to the end of the Feasibility Study, we still have about $4,000,000 of that left and that allows us the luxury of being able to look around and review financing options to take us forward into the construction phase.
Of course our cash burn has come down materially since we completed the Feasibility Study because we’re no longer doing such aggressive drilling and we’re no longer having to pay consultants on metallurgy, and the infra structure development and the tailings dam and all the rest of it.
So we’re quite comfortable at the moment.
Who are Metals Exploration’s significant shareholders and how supportive are they Jonathan?
Well, our major shareholder is Solomon Capital which is the investment vehicle of Chris Candy, one half of the Candy & Candy property developers. And I have to say that Chris has been the most live wire and energetic, supportive and engaging character. He appears to have fallen in love with the project - if you like a diversion from his property activities. He’s been to Philippines four times I think in the last year, has been to site and has never been anything other than hugely enthusiastic.
And so the question becomes, and which I guess is the point of your question, is that support going to continue? Well like I said, he’s never been other than hugely supportive by word and in deed, because he’s actually put his money where his mouth is. He’s put in 11,500,000 [pounds] of his personal funds into the company in the last year or so.
Our AGM is in about three or four weeks time in the middle of June, and that is the natural period for us all to sit down, and we’ve got this pencilled in as a strategy session to work out how we take the Company forward and what options face us.
And at that session his continuing appetite and potential contribution will become clear. But as things stand I’ve no reason to believe that he’s not going to continue to be as supportive as he has been throughout the last 18 months of his involvement.
How do you think the development of Runruno will be financed Jonathan?
I’m very much looking forward to this next six or nine months phase, because my background was as a mining banking financier. So the capex requirement looks as though it’s in the order of $150,000,000 as stated in the Feasibility Study, and classically you would do that by a mix of project finance from the banks and equity in the rough split of 60:40.
So for round numbers purposes, let’s talk $100,000,000 of senior debt project finance from the banks and $50,000,000 from alternative sources - typically equity. $100,000,000 sounds an awful lot coming from the banks but it’s something that I’m comfortable with, I’ve been there before, I would want to minimise the amount of work and documentation and review and all the rest of it that that takes, but fundamentally I view that as process, I know how to do it, I’ve been there before, and I‘m confident that we will be able to achieve that.
So the question then becomes where does the residual amount of the $50,000,000 come from? I go back to Chris Candy and he has 44% of the company. If he decides that he wants to stand his corner, then $50,000,000 challenge reduces down to somewhere in the order of $30,000,000 - £20,000,000.
It’s a very manageable, achievable amount for a company like ours to be able to address.
What further milestones need to be achieved to get Runruno into production?
Good question because the answer is very few. As a result of the work we have done through the hard times, actually we’re almost up and ready to go - we have our mining permit, which is in the Philippine context FTAA as they call it. We have the Environmental Compliance Certificate. There’s a number of small certificate and approvals that need to be done, but again they’re just process within the local context.
And so I guess the major milestones are the simple ones of just raising the funds to be able to commit to construction, and then putting the team together that are going to do the construction.
What can investors expect from Metals Exploration over the next 18 months or so?
Well over the next 18 months I hope that in essence we will be able to have their faith repaid in the loyalty that they have shown over the last couple of years.
Immediately, I would expect top be able to publish announcements on the fact that we’ve got our financing sorted out; we’ve got a banking group put together;
I would hope to be able to announce that we’ve got the molybdenum circuit sorted out, with all the leverage and the economic benefit that that will provide, and that that will see us through into start of construction which I would like to be able to achieve by the end of this year for the very simple reason that the Philippine wet season finishes in round about December and so if we can get all of the earth works done through the early part of next year then that gives a terrific basis for launching the full construction period.
Disclosure: The author holds no positions in the company