Generation Mining (TSX: GENM)(OTC: GENMF) Executive Chairman Kerry Knoll on Positive Feasibility Study for Flagship Marathon Palladium-Copper Project, Ontario, Canada
Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the executive chairman of Generation Mining — Mr. Kerry Knoll. Kerry, congrats and how are you?
Kerry Knoll: I'm great, thanks, and thank you for the congratulations… we're pretty happy over here.
Gerardo Del Real: I'm, of course, congratulating you because you just delivered the positive Feasibility Study for the Marathon Palladium-Copper Project. The numbers are excellent! Let me go through a few of the numbers.
Internal rate of return [IRR] after-tax of 29.7% and a Net Present Value [NPV] of C$1.07 billion based on US$1,725 an ounce for palladium and US$3.20 a pound for copper.
Of course, both of those metals are materially higher. If we use today's spot metal prices, you get an IRR of 47%; C$2.02 billion NPV; payback of 1.5years. I could go on but I want to let you provide the context. Just an excellent, excellent study.
Kerry Knoll: Yeah, thanks. We're really pleased especially with things like the payback. I mean, at today's prices – and we don't see any reason why prices aren't going to stay high for at least the next two or three years, if not much longer – so having a year-and-a-half payback on a project of this magnitude is almost unheard of in our business. That just shows you how good it is.
Gerardo Del Real: 13-year mine life; exploration upside is excellent. Tell me a bit about the metal breakdown and what that looks like. I understand it's 1.9 million ounces of palladium – and this is payable metals by the way – 467 million pounds of copper and 537,000 ounces of platinum, along with, just as a kicker, 151,000 ounces of gold and 2.8 million ounces of silver.
We talked a bit off air about the disconnect between the NPV and your current market cap and the multiples at which you're trading. Do you care to speculate as to why there's such a disconnect?
Kerry Knoll: Well – and I'll explain a bit of that disconnect – so a typical base metal company trades at about half of NAV. A typical gold company trades a little higher than that; maybe three quarters of NAV, some of them, the better projects. And we're trading at under 20% of NAV. That's the disconnect that you're talking about there. I think that at least part of the reason is that we're not that well-known. When we're presenting to people, a lot of times they've not even heard of us.
We have a major, major campaign over the next two months of presenting both group presentations and one-on-one presentations and just trying to get the word out about our project. Another possible reason that I talked about with the disconnect is possibly just the fact that it's palladium and not gold. People love gold.
People buy gold, a lot of the time, because they think that the economy is collapsing or that it will collapse in the future. And they don't buy palladium because of that. So we don't get quite the multiple that the gold players get. I think we're going to get treated more like a base metal company even though we do have almost all of our revenues coming from precious metals. The breakdown is, I think, 58% is coming from palladium and 26% from copper and then declining amounts in order of platinum and then gold then silver.
But even if we were to trade as a base metal company, we should still be trading at least about half of NAV. That would suggest that our 80% interest is worth somewhere around C$400 million in terms of value in the market. We're not trading anywhere near to that. There's some room for us to move.
Gerardo Del Real: Let me play devil's advocate. I'm going to ask some questions I know the answers to… but I want to highlight just how robust and the quality of the project. How's the infrastructure, Kerry?
Kerry Knoll: I don't think I could find a better location to build a mine… other than the fact that Canada has fairly high taxes! Seriously, we're in Canada. We're on the Trans-Canada Highway. There's an airport on the property. There's a brand new 230 kilovolt power line going through the property. There's a railroad.
And we're just outside of a mining town that is losing its workforce because the one mine nearby, which is the Hemlo Gold Mine, has been getting a little long in the tooth, and it doesn't employ nearly as many people as it used to. So the town is excited about the jobs, and we've got everything else that we need there in order to operate a mine.
We don't have to put in power generators. We don't have to put in roads, power lines, all of the things that the other, most of the mines, have to do. And we're in Canada, and we're in the province of Ontario, which has got a very, very pro resource development government currently.
Gerardo Del Real: The project also stands to contribute in corporate taxes and duties to the provincial and federal governments a total of C$944 million. Is that correct?
Kerry Knoll: Yeah, after we pay back that capex, our taxes are going to be around C$100 million a year. That doesn't even include all of the other taxes that you get dinged with and all of our employees' income taxes and all of those different kinds of things. That's just the straight corporate taxes.
Gerardo Del Real: This isn't a project that you're looking to finance and build 10 years from now. The press release outlines that you're advancing the environmental approval process, the engineering, and the mine financing during the remainder of 2021 and that you hope to begin construction next year, subject, of course, to permitting approvals and financing arrangements.
What does that look like? With your background and your network, and you've done this before… walk us through what that process will look like here in the next 9 to 12 months.
Kerry Knoll: Normally, these companies, and for reasons I don't really understand, they take several years to do a Feasibility Study. We've only had this project for a year and a half. And then they do the permitting; then they do the final engineering; and then they build a mine. That's why mines tend to take 7 to 10 years.
We're doing a lot of those things simultaneously. We knew what it was going to look like from the start so we weren't afraid. We went ahead with the permitting almost as soon as we could. Then, we are also now going to start doing the final engineering this year as the permitting is going on rather than wait to see how the permitting goes so that we can hit the ground running next year.
We're expecting it to be about a 20-month build. With a little bit of luck, by the end of 2023, we'll be making our first metal.
Gerardo Del Real: Sound pretty confident in the permitting process… sounds relatively straightforward by permitting standards?
Kerry Knoll: Well, permitting is always the one thing that you can never say, nobody can ever say, exactly when they're going to get them because you're dealing with governments, and governments by their very nature can be slow.
That said, the previous owner of this project, which was Stillwater Canada – which still owns through Sibanye 20% of the project – did some very, very good work on permitting. That's what's allowing us to be confident that we can get it done fairly quickly. They had advanced the project to the point where governments had signed off on the plan. And then it was ready to go before something called the Joint Panel Review when Stillwater, all those years ago, put the project on hold.
We're restarting that process. The governments have appointed the panel to review it. We're expecting that review to be ongoing through this year. That includes things like town hall meetings and consultations with natives and the local townspeople and all of that stuff. That's all kind of wrapped into the same package as the Environmental Impact Assessment.
Gerardo Del Real: I mentioned earlier the exploration upside and how this is being looked at right now as a 13-year mine life… but the exploration upside is excellent, and there is the potential to increase that mine life, correct?
Kerry Knoll: Well, first of all, there's a number of things here… if you look at the press release, either of the resources, it includes two deposits – the Sally deposit and the Geordie deposit – that are not in the Feasibility Study. And the reason that they're not in the FS is not because they're not economic; they're very similar grades as the main zone that is in this study. The reason they're not is because no permitting work was done on them.
Had we decided to include those, the permits would have taken several more years. So we decided to put them aside because you don't get much value beyond 13, 14 years anyways in terms of your NPV because of the discount rate. As a result, we decided to put those on hold.
But those could easily provide another 5 or 6 years to the mine life right there. So those are already discovered. They need some confirmation drilling but they're half measured, half indicated, so to speak.
Further to that, last summer and now again this winter, we are drilling down dip from the deposit. We're looking for underground grades; higher grades that can be mined by underground mining methods. Currently, everything we're doing is open pit. But there's an operating palladium mine in Canada that's making good money for Impala, the South African company, at a grade of 2.5 grams [per tonne]. And we're getting material up to 6 and 8 grams in our deeper drilling so we've got the beginnings of an underground deposit that could extend the mine life or supplement the mine during its existence.
Of course, it's preliminary. We haven't got a resource on that yet; we need to do a lot more drilling. But we've been getting some very good numbers.
Gerardo Del Real: Yeah, I was going to say there's still the whole other side of it, right?
Kerry Knoll: There's the whole rest of the property. There's a strike length of this zone that is in excess of 25 kilometers. Most of it has not been explored simply because it's covered with overburden or it's in difficult-to-access terrain. But there's nothing to suggest that we couldn't find several other deposits along that way.
We intend to continue to explore because a palladium deposit is finite… so the more we can extend the mine life, the more value we're going to have. And of course, ultimately, you look to build a mine and somebody will take you over. And that's where the shareholders make the big money.
If that happens, the longer the mine life, the more we're going to get for this company. That's kind of the long-term appeal.
Gerardo Del Real: You've done it before… I suspect you'll likely do it again. Incredible work… congratulations! And thank you for the time today, Kerry.
Kerry Knoll: Thank you.