Categories: Precious Metals
Topics: General Precious Metals

Midas Gold (TSX: MAX) CEO Stephen Quin on Recent Financing and Vote of Confidence from Paulson & Co

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the president and CEO of Midas Gold (TSX: MAX)(OTC: MDRPF), Mr. Stephen Quin. Stephen, how are you today?

Stephen Quin: Good, Gerardo. Back in Vancouver finally.

Gerardo Del Real: I know it's been a busy several weeks for you. You were at BMO, you were also at PDAC. Before we talk about what looks like gold headed towards $1,700 and the state of the markets, let's talk about what your feedback and your thoughts as to the climate of both of those conferences were. I mean, the bottom line is everybody's dealing with this coronavirus scare. Did that affect attendance at either conference?

Stephen Quin: I would say much less so at BMO. There was a notable lack of people from Asia. A lot of those people chose or weren't able to come, so there was a reduction from that point of view. But the attendance was good. But the balance of meetings for the companies like a Midas, shifts year on year and you can almost read the sentiments of the market by the nature of the meetings you have.

We saw a much higher interest and number of meetings with corporates, other companies, just getting updates on what's happening with the project, et cetera, and wanting to make sure they got their finger on the pulse. Less from resource funds, because they're just not getting money in the door and they're really, because of the volatility in the market, much more focused on the larger, liquid producer-type stocks that are benefiting from the higher gold price today. And so, that sort of shift in priorities. And then higher interest from private equity type groups. They're all in the bargain-hunting mode again, looking for opportunities.

Gerardo Del Real: Excellent. And I know that during BMO, I think that coincided with the large quarantine out of China, so that makes all the sense in the world. Tell me a bit about PDAC and then let's talk about this financing.

I joked with you privately that had you announced the $35 million private placement the week before liquidity dried up, I probably would not have been as big a fan of it. And then with the fears surrounding coronavirus and liquidity drying up, I thought it was a brilliant move that pretty much guarantees that you make it across the finish line. And we'll talk about that in a second and the support from Paulson and his group there. 

But let's talk PDAC a bit. How was that?

Stephen Quin: PDAC was more subdued. Jumping back to the BMO conference, of course Sunday night, Monday were great. Gold was headed to $1,680 and everybody thought, "Okay, the party's on." And then by Tuesday, Wednesday, it definitely sagged off a bit, and that trend continued into PDAC, which was from Sunday just passed until yesterday. While you definitely noticed that PDAC's attendance is down – I think it's about 10% from last year – there were a number of empty booths, not a huge number, but scattering here and there where people just didn't come at all.

Just going around to all the events and even at the conference, there was a lot of taking sensible precautions, avoiding the handshakes and lots of hand sanitizer on everybody's tables, and people taking precautions. Because you look at PDAC, I think there was 90 countries represented, with people from 90 different countries. If there was a place to spread coronavirus around the world, PDAC would be it because people were wandering around shakings each other's hands, and 20,000 people heading to 90 different countries, it would spread very rapidly. People were being sensible.

Gerardo Del Real: Let's talk about the news from February the 27th. You announced a financing, $35 million US. A hefty amount considering the climate and the insecurity around the global economy. Big, big vote of support from Paulson & Co. 

Can we talk about that a bit and what you're going to use the money for?

Stephen Quin: Sure. The challenge of the permitting process being extended, which we announced back in January, essentially it costs more money to complete the task. Our thinking had been with the draft EIS scheduled to come out in January, there's a good positive development that would provide a platform to do an equity financing. We were essentially getting all the preparation to potentially do something late January into February when the draft EIS came out, launching off good news.

The delay and the permitting process that we announced at the end of January kind of cut the legs off from that strategy. People get cautious, nervous, "Oh, there's another delay, maybe I won't invest." So the interest faded from the equity side. There was definitely interest, but it would've been, call it expensive financing, significant discount, half warrant. Investors may love that kind of thing, but companies don't because of the dilution impact. If you look at the financings that have been done this year, they've been very much of that kind of nature, sizable discount, warrants attached, various things like that.

Gerardo Del Real: Sure.

Stephen Quin: So we, as a board, had discussions about the options and you really had three. You could have severely cut back your expenditures, but that would just extend the permitting timeframe and end up costing you more. So it's not really a positive solution to do some equity, which obviously comes with less strings attached. Yes, you dilute but it's different to convertible notes.

Then we were heading down that path and then Paulson and Co. came forward with a convertible note financing that's similar to the one we did with them in 2016. The only real difference is it's priced differently, at a higher price than we did in 2016. And basically just said, "Look, we're prepared to put a more comprehensive solution on the table, given volatility, uncertainty of the markets, uncertainty of the timeframe. You need to go into this or continue this process from a position of strength. Dealing with the regulators, knowing you've got the money to keep pushing things forward."

So that triggered a review by our independent directors and then an independent committee was set up because Paulson has two directors on our board. So they were excluded from all discussions, negotiations, evaluations of different options and things like that. The independent committee came back to the independent directors, the non-Paulson directors, and said, "In light of circumstances this is the best option to provide the certainty to move forward."

Back to your comment earlier. We are fortunate that all of that process and all the independent committee and they had an independent financial advisor that got finished over the weekend, and we announced on the Monday morning. No sorry, we agreed to everything on the Monday morning, but the nature of this financing is such that you have to prefile with the TSX, Toronto Stock Exchange, before you can announce the transaction.

And so that process took a couple of days. But if you look at it, a week later that discussion would probably have been very different because the volatility of the market and shares falling out of bed, especially on the Friday for the mining sector. Timing, it's a common expression, it's better to be lucky than smart. And I think we were just very fortunate in our timing, and we were very fortunate to have this support of Paulson and their willingness to put their balance sheet on the line to support the project.

Gerardo Del Real: Well, given the amount of gold and the antimony credit that the project boasts, I think that as far as Paulson goes, if you're going to be a contrarian investor, which Mr. Paulson is, I can't think of a better deposit to sink a large chunk of capital into. It's in a great jurisdiction. You're far along the permitting process. 

Will this get you across the finish line?

Stephen Quin: It certainly should. I mean, essentially the $35 US million was essentially to take us through the permitting process and beyond. It sort of allows, well, what if the permitting process, there's another extension, which we don't expect and certainly we're doing everything possible to avoid, but what if. The challenge of uncertainty is we don't control the schedule, we don't control what happens.

So this provided some certainty to carry us through to the end of 2021. While we don't know the updated schedule yet, it's advancing, but there's a bunch of moving pieces on the schedule for permitting. We would anticipate a decision coming out in the first half of '21. That's definitely what we're striving for. The financing would take us to the end of '21, so it was what we needed plus a bit. That puts us in a much more confident position to push the regulators, to get on with it, get it done. We have the financial resources to complete the process, et cetera.

Gerardo Del Real: Excellent. Stephen, anything else that you'd like to add? I know that you're busy behind the scenes, holding local meetings and speaking with both sides of the aisle. Anything that you want to add to the news or moving forward here, as far as Midas goes?

Stephen Quin: Well, to be 100% clear, the delay is disappointing. We believed we were heading in a good direction for most of the latter part of last year. But the key to a successful permitting process is getting the document right. While you could argue an opportunity to publish a draft EIS and get it out the door, if that document was floored the risk is much higher to see a substantial extension, a supplemental process or a major setback.

And so, we and the regulator accept that the document that was prepared was just not good enough to go out and it needed improvement to get a valid process completed with the public.

Gerardo Del Real: Well, you got to check the boxes off. In the meantime, you have gold trading at $1,668. I think that, and I've said this before, I think that that permit is going to be delivered at a pretty opportune time as it relates to the price of gold and what that's going to do to the inputs, as far as those 6.6 million ounces of gold, at the very least, that exists at Stibnite.

Thank you, Stephen, for the update. I look forward to chatting with you again as updates come in, and I know that you're eagerly expecting those as is everyone else.

Stephen Quin: Great. Thanks, Gerardo. Always thanks for your interest.

Gerardo Del Real: Absolutely. Appreciate the time, Stephen. Thank you.

Stephen Quin: Thank you.