Categories: Base Metals / Energy / Precious Metals
Topics: General Base Metals / General Energy / General Precious Metals

Exploration Insights' Joe Mazumdar on a Handful of His Favorite Gold & Copper Junior Resource Companies

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the Editor and Analyst of one of the best resource newsletters in the business, Exploration Insights, Mr. Joe Mazumdar. Joe, it's been a bit. How are you?

Joe Mazumdar: Good, good. Thanks for having me, Gerardo.

Gerardo Del Real: Thanks for taking the time. I mentioned that it's been a bit since we chatted publicly, I believe going back to March. It seems like it's a different planet. Social chaos and election volatility aside, let's keep it to the resource space for now. Gold was at the $1,500 level the last time we spoke. Here we are 6x months later, and we're at $1,860. Gold seems to be putting in a pretty good floor from the looks of it. I'd love to get your thoughts on the gold price, and then we'll get into some plays out there. 

Joe Mazumdar: Well, I'm not a big forecaster on the gold price. I continually look for assets that do well at lower price levels. But what helps me, and helps companies, is the gold sentiment. The sentiment helps people raise money. That's what we've seen over the last 6 months, since the middle of March. We've seen people raise money. I think year to date my numbers are $6 to $7 billion dollars raised with TSX-listed companies in the mining sector. 

Right now, being financed is not really a distinguishing feature with junior mining companies. They're well funded. The issue for me, right now, as you said it's a different world, is trying to find out who can actually do anything, because COVID-19, the pandemic hits every country a bit different. It's helped, in terms of hindering supply on metals, especially the precious metals, gold and silver, a lot of those operations have been either put on care and maintenance, or closed, or suspended. 

I know Pan American suspended a couple of their underground operations in Peru, and then they restarted them, and then they had some cases, now they shut them down. A lot of companies are dealing with that in Latin America, but I would say mostly in Peru, Chile, Argentina. All of these Latin American countries are really taking most of the brunt of that. What's good and supportive is that's what's supporting copper and some of these other metals right now during this pandemic. 

Gerardo Del Real: You mentioned precious metals, you mentioned copper. The last time we spoke, copper was trading at the $2.15 level. It's now firmly right around the $3 a pound level. There's a few gold-copper plays that I would love your thoughts on. Both companies that we both cover. 

The first would be Regulus (TSX-V: REG)(OTC: RGLSF). They're about to kick off what I believe will be a pivotal drilling campaign in Peru. I'd love to hear your thoughts there, obviously it's an advanced-stage play. Do you think it's a takeout target?

Joe Mazumdar: Here's the thing, I've owned Regulus for a while. Regulus' property AntaKori, which is right on the edge of an operating heap leach mine called Tantahuatay, a joint venture partnership Buenaventura and Southern Copper. What Regulus had tried to do and is doing, is taking a very complicated land structure, different partners, with not a simple geological model, and trying to advance, potentially, a plus billion dollar resource when you combine it with what the joint venture partners at Tantahuatay have. 

In this market, where we were talking about copper that I see a 2025 window where there's a potential where we don't have assets falling in there to fill this window of a supply gap. The supply gap has probably been exacerbated by the current COVID-19, which has hindered some development projects. As we know, if we don't know about these development projects right now, there's little probability that they will fall into the 2025 window, given how long it takes to advance a project, develop it, and permit it.

Gerardo Del Real: Right.

Joe Mazumdar: I've been looking for advanced projects that would fill that window, and definitely AntaKori and what they're trying to drill right now, Anta Norte, in combination with what the partners have to the south of them would be one of those projects that I'd be looking at. 

Gerardo Del Real: And obviously a team that knows how to monetize assets in that part of the world, right?

Joe Mazumdar: Yes. John Black, I've known him since he worked in RTZ. He's got a long history with Western Mining, and before that with Kennecott, and also his previous iteration with a sale of another asset in Peru to, I believe it was, First Quantum. 

He understands, and his team understands, what majors want. He doesn't need to put out a feasibility study, but what he does, which is good, is that if there is an issue like, okay, the big risk let's say is land, then he'll work on securing the land. If the issue is metallurgy, which here the arsenic content is one of the issues, he'll do work on the arsenic content. What we're talking about now is a lot of the arsenic issues at one part of the deposit, which is the AntaKori one, which is at the roots of what we call a high-sulfidation epithermal deposit, which has a lot of enargite, which is an arsenic-bearing copper mineral. That generates a lot of arsenic in a potential concentrate here. But what we know is that Yanacocha is working on something like this with Newmont and Buenaventura down the road.

We're seeing feasibility stage level studies of doing this right now, in Peru, with majors. Arsenic is an issue with copper concentrates going forward, because a lot of the deposits have arsenic in them. It's going to be an issue that everybody has to deal with, sooner or later. These guys are more advanced in it, because that's something that comes out with any major looking at AntaKori. 

But what's also interesting is this new ground that they're drilling to the north that they just permitted and now they're going to access, which is Anta Norte, which is more like a skarn so it has less arsenic. It's potentially lower grade, but it has less deleterious material. There's a potential to mine some stuff that's got a lot of arsenic in it, and some stuff that's got a lot less, to blend it, and to make a more benign concentrate. 

Gerardo Del Real: Do you think the combination of a looming supply deficit, combined with increased demand in the copper space, and the copper and gold values that the Regulus project has, do you think that's attractive enough to the neighbors nearby, as you called them, that to me seem like a logical fit to come in and take the company out. Do you see the copper and gold values attractive?

Joe Mazumdar: Well, the thing is if we take the size of the deposit, which could be very significant if we include what the partners to the south have, in just what AntaKori has defined, and we're not even talking about what they're planning on building in Anta Norte. 

Gerardo Del Real: Right.

Joe Mazumdar: That's a sizeable deposit. But the issue is that one of the partners, Buenaventura, is not a partner to build a multi-billion dollar copper-gold project. They do not have the cashflow, and they never did. They usually partner with other companies. The problem right now for Buenaventura is because they're predominantly in Peru, they've been hit by COVID-19 on their operations, aren't generating a lot of free cashflow, and they also have expansions related to that project that we were talking about at Yanacocha, in terms of the sulfides. They're not at a point where they could actually do something major. 

I think what has to happen is somebody from outside has to come in and look to consolidate with it, and maybe partner with Buenaventura, or partner with Southern Copper, or even Gold Fields, that has a Corona project nearby.

Gerardo Del Real: Thanks for the clarification. 

Joe Mazumdar: Yeah. There's a lot to deal with, but I think the prize has to be something that's worth all that trouble. I think that prize is there that would make somebody, and potentially a gold company that's looking for more copper, which Mark Bristow has talked about with Barrick, or even with Newmont. Newmont had the Conga project that they had to put on ice because of local opposition. It's not as if it's only going to be copper companies that would be interested in a project. Gold companies as well could be interested. They also understand how to use autoclaves, which would be how you would basically take some of the arsenic out of the concentrate, which would be an important metallurgical step. 

Gerardo Del Real: Sounds like you're still good on Regulus. Good upside. 

Joe Mazumdar: Yes. What you want, you want an asset with tonnage and grade, in a jurisdiction where there's plenty of mines, and people have done things well. Obviously Peru was, a couple of years ago until pre-COVID, the largest importer into China. Then you also want people that understand how to advance it. That's definitely got the right team. 

The question you have to layer on the risk of COVID is because Peru has got the COVID lockdowns and things like that, it's not as easy to do work in Peru as it was previously, in terms of permitting, going through bureaucracy, or actually logistically getting out and accessing the project. That's part of the reason this has taken such a long time, from the beginning of the year to now, where they're looking at drilling the project.

Gerardo Del Real: Wonderful. Let's talk another Peru-based company that's earlier stage, but basin-scale potential. That's Hannan Metals (TSX-V: HAN)(OTC: HANNF). I'd love to hear your thoughts on Hannan. 

Joe Mazumdar: Okay, Hannan's different, in the sense that what we're talking about with Regulus, and all these deposits on the Andean side, we're looking at porphyry copper related deposits, whether they're epithermal, whether they're actually porphyries, or skarns. That's one side of the belt. The big thing about Peru is that it has such a high metal endowment that brings a lot of different deposits. 

But one deposit that doesn't really make the top 10 – if there is one – with respect to deposits people are looking for, are these sediment-hosted copper silver deposits that you can find in Central Africa or in Eastern Europe. That Sub-Andean basin, which is to the east of the Andes, is where there's several companies are looking at these types of deposits, which could be fairly large and extensive. They're looking for them all the way from Peru, Ecuador, to Colombia now, that people are looking for these deposits. 

These are grassroots explorers looking for these kinds of deposits, and Hannan is one of them. There's one company looking for the same thing in Ecuador, and now there's a new company that's looking for the same thing in Colombia. 

Gerardo Del Real: Favorable risk-reward profile with Hannan?

Joe Mazumdar: Yeah, when I bought it, absolutely. I knew the people. Again, that's very important. They were putting together a large land package, which they have, and doing all the right science. This is grassroots. But problematically, the same layer that you have to deal with with Regulus, in terms of access. Once you layer COVID-19 onto it, you have to contact or come in contact with local communities, the right thing to do is slow down your exploration such that you're not seen to be bringing COVID-19 into the local communities. So they've backed off, in terms of doing a lot of field activities until they can actually get some social license to come in and doing the right thing. 

In the interim, they're building up their networks, and helping these people, in terms of hospitals, or things like that, to build some social license to operate in the area during the time of COVID. It's a big potential deposit, needs a lot of grassroots work, but a lot of these companies are not doing these grassroots work. So it's taking these juniors to do it. 

What I'm looking for is the big land package, which they have, the people, which they have, but we have to add that risk in terms of timing and newsflow. You have to think a little bit longer term as opposed to a quick return on this one. But saying that, I did make, I think, a double or a triple on it, and I took some money off the table on that one. But again, right people, looking for the right potential size deposit, and doing the right thing. But COVID has basically had a negative impact on some of these people's ability to actually work these areas. 

Gerardo Del Real: I mentioned Regulus, I mentioned Hannan. Are there other gold, or gold-copper, or just copper plays out there that you really like? 

Joe Mazumdar: I still own Trilogy (NYSE: TMQ)(TSX: TMQ) in Alaska. They also were negatively impacted by COVID, because once you touch a local community that's isolated. The issue with Trilogy and South32 is that they're dealing with the NANA Corporation, which is a local native group that's a partner in developing the Arctic deposit in that area, is that you don't want to, again, be seen bringing COVID-19 into that area, because you actually employ a lot of them. That gets problematic, and so what they did was they are not having a field season this year. Not that they need one to advance the project through permitting, because they already have released the feasibility study. They've started the mine permitting, the road permit was received, and now they're just starting the preliminary works on designing the road with AIDEA, who are actually going to be building the project. 

That's happening in the background, but in terms of the retail crowd that needs newsflow, we won't have news flow from Trilogy. But here's a feasibility study project, the road that opens up this district has been permitted, and then once you go in there, and you drill new projects, because these volcanogenic massive sulfide deposits tend to happen in clusters. They've defined one. Now that the road's there, now the idea is let's find more. Then they also have that other project, Bornite, which is actually what South32 was originally interested in. 

Here's a company and a project, with a major that's operating at South32, with an asset that potentially falls into this window that I'm looking at. There's very few junior companies that have exposure to a sizeable copper asset that would fill that window. That's why I continue to hold Trilogy. 

Gerardo Del Real: Let's switch gears a little bit. Let's talk battery metals. Are you dabbling in that space? I know you keep track of it. We talked off-air a bit. Elon Musk and Tesla just had their big – disappointing to some – battery day. Any metals in that space that are attractive to you?

Joe Mazumdar: Yes. I don't look at it just from a battery perspective. I look at it from a reduction of greenhouse gas emissions. There's this idea of battling climate change. That's not only the electrical vehicle or renewable energy, but it's also metals that work to reduce greenhouse gas emissions from cars, like palladium. I'm interested in copper, I'm interested in nickel, and I'm interested in palladium. The issue – I'm less interested in the smaller market metals, like cobalt, and even lithium now, because I've dabbled in that – is that these are smaller markets that are more volatile. I prefer the bigger markets like copper, and nickel, and palladium to those. I'm sticking to that. The best one, in terms of liquidity and exposure, is probably copper because you have to electrify all these things. It's not about generating the power, but how do you distribute the power. Copper is great for that. 

Palladium, I like, if there's any risk on the penetration of electric vehicles, then palladium fits that window where not everybody's buying an electric vehicle. They're still buying their normal car, but that car has a higher palladium loading to give you the emissions standards that governments are asking for. Palladium, again, fits that because mostly palladium deals with the unleaded engines, not the diesel engines. If you like platinum, that's more of the diesel engine exposure. I'm looking more at this.

Then I've done quite well on nickel plays, as well as copper plays, in thinking about this environment. That's one of my major themes, besides the precious metals, monetary expansion, negative yielding debt, all that other stuff. This greenhouse gas emission reduction is one of my major themes in terms of getting commodity exposure.

Gerardo Del Real: Interesting, interesting. Pivoting back to gold, before I let you go. Are there any other names that the average speculator would be wise to do due diligence on? 

Then of course, let us know how people can access your letter. I mentioned that it's one of the best ones in the space, I am a subscriber, I'm biased, as I am with everything I mention. Any other gold plays that would be worthwhile digging into?

Joe Mazumdar: In terms of gold, my top picks include Liberty Gold (TSX: LGD)(OTC: LGDTF), which is a company that's working on a project called Black Pine in the great basin of Southwestern US. It's in Idaho, and they're looking for oxide heap leach, open pit amenable gold. They keep drilling that. They've got three or four rigs drilling right now. They keep expanding their footprint. It looks like the deposit is getting larger and larger. They have yet to put out a resource on it. Maybe we'll see one next year, but the drilling continues. 

That's one important thing I would say that in terms of this COVID-19 global issue right now, is that people have been able to raise money, but now the question is can they actually do anything with that money? Picking a company with an asset in a place that they have people locally that can actually generate newsflow is important, and definitely Liberty has that. 

Another one I'd draw your attention to would be HighGold (TSX-V: HIGH)(OTC: HGGOF), which is in Alaska. They're drilling a very high grade polymetallic project, JT deposit, up in southeast Alaska near the Cook Inlet. They're drilling right now. They've raised money. What's nice about it is very high-grade polymetallic deposit with gold, lead, zinc, and copper. Also, these are big widths, so minability will drive the cost down as well. It's isolated, but originally the people that drilled this more than a couple of decades ago, they were actually looking at directly shipping the ore out of there to a plant – that's how high grade it was – even during times where the prices were lower. That's another one I would watch for. 

Gerardo Del Real: With metals prices higher and balance sheets theoretically anyhow in better shape than they have been in the past decade, do you see an increase in M&A? We mentioned Regulus and the potential for a takeout there, but do you see increased M&A in the gold and copper space?

Joe Mazumdar: Yeah, I did a study on these 24 gold producers listed in North America. You can see that the average company spends three to four times on G&A than exploration as a proportion of their revenue. So they're not spending a lot of money on exploration. So their pipelines are depleted, and their issue will be how do you, not only grow, but how do you learn to stand still? 

I see a lot of the mid-tiers continuing their M&A, and the majors looking at big deposits, and potentially acquiring companies to get bigger. But you got to remember, in terms of when we look at assets, gold price is $1,900 or whatever it is right now, but a lot of these companies are still using $1,200, $1,250 in terms of their reserve prices. Are we going to see them move from $1,200, $1,250 to $1,400, $1,500, which is closer to what banks are looking at right now, in terms of prices, and then say, okay, how much more ounces do I get? These will be lower grade ounces, lower margin ounces, but do they start bringing that in? 

Before the M&A comes, they might bring up their own reserve prices to build out their own deposits. Because in the end, that's easier, it's organic, but also some of these projects that they're looking at might not work at their current reserve prices of $1,200 and $1,250, so they might be reluctant to bring in a project that would not be reserves under their current reserve prices. There's less of those kind of assets out there, because a lot of people are buying companies with assets are marginal.

But what we got to realize is developing that asset would be difficult with debt, because debt is lending at a $1,500 gold price. Then if we look at M&A, it's hard to think that a company would buy them if they had a $1,200, $1,250 reserve price, and they're bringing in an asset that they couldn't convert into reserves, using their current prices. That's why quality matters, if you need or want that underlying, and you might not, thematic a potential takeout. 

Gerardo Del Real: Interesting as always, Joe. How can people subscribe and get access to your letter? I know your website also offers some free material that's very, very thorough and good for due diligence checklists. How can people access it?

Joe Mazumdar: I'd say explorationinsights.com. Like you said, there's a lot of free material on there if you want to subscribe. It's easy, you click subscribe. It's a monthly subscription. You can cancel anytime. There's a wealth of information on back issues and you'll get access to our portfolio, and stuff like that.

Gerardo Del Real: We'll make sure to put a link up. Joe, anything else before I let you go?

Joe Mazumdar: No, that's good. All the best. We're making our way through this. I'm just starting to get out to some site visits right now.

Gerardo Del Real: I saw that, I saw that. Be safe out there, and let's catch up again here in the next few weeks and months. 

Joe Mazumdar: All right. Thank you very much, Gerardo. 

Gerardo Del Real: Thank you for your time, Joe.