Kutcho Copper (TSX-V: KC) CEO Vince Sorace on Improved Metallurgical Recoveries at the Kutcho Project & Non-Dilutive Financing from Wheaton Precious Metals

November 26, 2019

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Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the President and CEO of Kutcho Copper (TSX-V: KC)(OTC: KCCFF), Mr. Vince Sorace. Mr. Vince, how are you sir?

Vince Sorace: Doing great, Gerardo. How are you?

Gerardo Del Real: I am well. I know that it's been quiet for a bit. The last couple of weeks have been the exception. I know behind the scenes you've been extremely busy, and I want to talk about the latest piece of news. You had two pieces of news that I think are important. One, the met work that was released on November the 21st. I want to go over that. That's important.

And two, I don't think it's a coincidence that that was followed up by the announcement this morning that your partner, Wheaton Precious Metals, was amending the convertible loan agreement, and that they were willing to, obviously, continue to support what I view is one of the most compelling speculations in the space.

So let's start with the met work. Can you provide an overview of that? Because it was very, very positive.

Vince Sorace: Yeah. As we continue to move through the process towards the feasibility study, met's a key component. Key component not only for the fees, but what drives value in the project. And those were exceptional results. For that Esso lens, to get 94-plus percent recovery on the copper side, almost 90% on zinc. Those are pretty phenomenal results by any standard out there in our business.

We were previously, in our pre-feasibility study, using numbers significantly less than that. So there's been some drastic improvement with respect to recoveries, improvement with respect to simplifying the process, and this adds significant value to the project moving forward.

Gerardo Del Real: Now the results showed improved copper, zinc and silver recoveries. It also showed higher concentrate grades and improved separation of copper and zinc into the respective concentrates as you outlined in the news release.

Now you have a market cap of approximately $11 million. When I say that Kutcho represents one of the most compelling speculations in this space, I'm not just pulling that out of thin air. Your market cap's approximately $11 million Canadian. Can we go over the 2017 pre-feasibility study for just a bit and highlight the net present value of the project as it stood back then, before the improvement in grades and recoveries?

Vince Sorace: Sure. We posted that in mid-2017. At that time, the project was pretty compelling and robust showing a $265 million after tax NPV, and a 28% IRR, and a low capital build on this thing too. At that time that was around $220 million for initial capital. Everything that we've done since then, which includes primarily a couple of things that add value is we've expanded the size of the resource quite a bit. I think there's more to come with respect to that. There's definitely upside potential from a brownfield's perspective and from a blue sky exploration perspective on the project.

Then these increased met numbers. We were using life of mine recoveries of 84.5%, 84.7% copper, which included Esso and Main together over life of mine. I'm going to suggest that moving into the feasibility study, those recoveries are going to be a lot higher. They have a significant impact on value. Value meaning NPV and IRR moving forward.

So between a much larger resource for us to work off of that'll translate into reserves here that we'll be doing in the feasibility, plus these extra recoveries the economics are going to look compelling.

Gerardo Del Real: Obviously, Wheaton Precious Metals has been impressed. They've been very supportive. You structured a great deal with them a few years back.

Can we talk about the news from this morning, amending the convertible loan agreement? Obviously, you have a partner that wants to see this project move forward and is very supportive. They're validating it with their checkbook, not just with the pretty words. Right?

Vince Sorace: Yeah. Wheaton has been very supportive. They've been a great partner for us in this right from the get go. And they recognize right now that the markets are struggling a bit and they believe in the asset. They believe in the project. They see the future of it, and they want to realize the value of their stream, ultimately. And so they don't want to put us under any undue pressure.

That's evidenced by one, postponing any interest payments due under that loan they provided us to help acquire the asset originally, and giving us some extra capital to give us runway – and that's non-dilutive – for us to continue to carry on with our lives and assess. We're always, and currently, out looking at and assessing different strategic opportunities that'll help clear the path forward and move this project forward. So that gives us the extra time and runway to do stuff like this.

Gerardo Del Real: You mentioned the capital. They agreed to make a non-revolving term loan for up to I believe $1.3 million Canadian. Is that correct?

Vince Sorace: Yes.

Gerardo Del Real: And that would not mature until the end of 2020. Is that accurate?

Vince Sorace: Correct.

Gerardo Del Real: Excellent. And then the last part – and this I really liked because of the fact that it limits dilution – is they agreed to remove the ability to convert a portion of the deferred interest into Kutcho shares. Can you speak to that a bit?

Vince Sorace: Yeah. Listen, they've got an equity position in the company. They've written checks from the equity side in the company. They understand that on the dilution side that it's important to manage that as well. So taking all of that accrued interest and making it non-dilutive was just another plus towards this restructuring here and their help to move this project forward. Yeah, they've been fantastic.

Gerardo Del Real: How is the feasibility study coming along?

Vince Sorace: Well we've completed – basically as we wrap up the balance of the met here – we've completed all the components to it, it's ready to go. So it's essentially going to be plug and play. We're looking to hopefully kick that off very, very soon and get going on that, which again should highlight the value of this project, de-risk the project further. And as you mentioned earlier we're trading at around, what is it, a $15 million market cap today, which equates to about a 0.005 P/NAV or something like that.

In today's world, even off the current economics, we're trading unbelievably cheap. I would suggest even cheaper given the opportunity that we're going to continue to show and be showing in the asset moving forward. Yeah, I think it's a great opportunity here, Gerardo.

Gerardo Del Real: I couldn't agree with you more. A lot of runway. You have supportive shareholders. You obviously know how to negotiate on behalf of your shareholders. So as a shareholder, Vince, I want to say thank you on that front, because this could've gone very differently with a ton of dilution.

So I know that shareholders, despite a tough, tough base metals market, have to be pleased with the execution on that front. And I think 2020, I just read a note from Goldman Sachs that says they anticipate higher copper prices. I think you're in the sweet spot for being able to move the project forward. Anything that you'd like to add?

Vince Sorace: Yeah. I don't think there are any disbelievers out there with respect to your comment from Goldman. All the major players in the world believe that we're going to be coming into this better copper market. I think that's going to time out really well for Kutcho. Yeah, something like this is something you want to get ahead of and position yourself, because I think if a few things get resolved, there could be some pretty quick and immediate returns.

Gerardo Del Real: Rapid rerating, that's what happens. I know we're in tax-loss selling season folks, but this is the buy low part of the buy low, sell high equation. I can't stress it enough.

Vince, thank you for the thorough update. I appreciate it and we'll talk soon, I get the feeling, on the feasibility study.

Vince Sorace: Thank you, Gerardo.

Gerardo Del Real: Appreciate it

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