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

Cordoba Minerals (TSX-V: CDB) CEO Mario Stifano Responds to Criticism of HPX Transaction, Looks to Position His Firm as the Go-to Vehicle for Exploration in Colombia

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is President and CEO of Cordoba Minerals (TSX-V: CDB)(OTC: CDBMF), Mr. Mario Stifano. Mario, how are you today?

Mario Stifano: I'm doing great, Gerardo. Thank you for having me on this call.

Gerardo Del Real: Well, it was important for me to have you on. You've had a lot of news in the last month or month in a half. Some of it hasn't been well-received, especially by the retail side. When I reached out I wanted to be clear that I wanted to have an interview available to people that really got into the details of the deal and the explanation as to why the deal was structured the way it was structured. So I really want to thank you ahead of time for your time today, Mario.

Mario Stifano: Oh, look, I think this is the right time to address any questions you may have on the transaction, because we think this is in the best interest of Cordoba shareholders, and it will be extremely creative in the long-term for our shareholders. So any questions you have, I'm happy to address.

Gerardo Del Real: Excellent. Let's start with the most glaring and obvious criticism from the retail side, and that has been the dilution, and what the strategy and the thinking was behind diluting yourself to the point where you're at now, assuming that the deal closes. I wanted to give you the opportunity to explain that and explain what the thinking was there.

Mario Stifano: Yep. Great question. The dilution issue that people bring up is not really factual. The deal structure we had with HPX is, if they carried a project to feasibility, they would have 65% of the asset, and Cordoba shareholders would have 35% of the asset. Our view is, it would take $10 million to $15 million if you focused 100% on Alacran to get Alacran to feasibility.

We, as part of this transaction, raised $10 million and our shareholders, after raising $10 million, have a 43% interest in the project as compared to the 35% interest the project, which is almost a 20% uplift. If we wanted to raise $20 million in this deal, even with that additional dilution, we would still have 38% interest in the project after the $20 million financing versus 35% that we would have had under feasibility. So the dilution that people refer to is the overall increase in the share count, but as a result of the increased share count, we now own 100% of an asset versus 35% of an asset. You look at any company that creates long-term shareholder value, it is always beneficial to own 100% of an asset versus a partial interest in an asset. So the dilution, I don't think is a fair point or fair criticism.

Gerardo Del Real: Fair enough. Let me play devil's advocate here a little bit, Mario, and just come back with another criticism, and this is one, actually, which I've raised privately and publicly. The private placement was priced at $0.81. A lot of people viewed that as very friendly to, obviously, Mr. Friedland who, of course, is a great partner for you. But a lot of people viewed that as a very Robert Friedland friendly deal, you know, Robert Friedland and friends, per se. Right? The group that came in for the financing.

Mario Stifano: Yep.

Gerardo Del Real: That is an opinion that I think is pretty consistent throughout the retail side. Can you explain the reasoning behind that and what the options could have been had you not gone that route?

Mario Stifano: Well, on the financing, as you can imagine, it doesn't take the snap of a finger to raise capital, so we toured various funds all over Toronto, New York, the UK, Zurich. So we went all over the place to talk to various funds to gauge their interest in the project, and we had some great meetings with some of the world's biggest funds. So if you look at our financing, we've had everyone from Sprott, which is taking a fairly sizable position, and they also are part of the underwriter's syndicate. We had people like RBC to Gold 2000 coming into the financing. From our perspective, the financing was not priced for Robert's friends. This has nothing to do with Robert.

What we wanted to attract were large, reputable institutions that will be behind Cordoba for the short-term, but more importantly, for the long-term. These are institutions that don't really look to sell shares and trade shares, they really look to advance a project, hopefully, what we think, is to the development and eventually the production phase. So there was no friendly pricing to any of Robert's friends or anything to do with Robert, in fact, because Robert is restricted just like everybody else. All the money that came into this financing are international funds.

Gerardo Del Real: Got it. Okay, excellent. Let's talk about some things that haven't changed. The rocks haven't changed. This is something that, having visited the property, when I visited the property it was apparent to me that the exploration potential is absolutely world-class. It was also apparent to me that Alacran has the potential to extend, definitely, to the south, and that that resource alone can get significantly bigger here in the next 9 to 12 months. Can we talk about the rocks and the project a bit there? Let's start with Alacran and maybe segue into some of the other exploration targets, Mario.

Mario Stifano: Great question, Gerardo. The reason why we all came into this story is because of the rocks, as you just pointed out. We think Alacran has the potential to be a mine. That's one of the reasons why we focused a lot of our drilling on Alacran, because we really see a path to production for Alacran, which is very rare for a junior of our size to be saying that, but we see real potential there.

At Alacran we see the potential to the south because we believe there's an offset there that will extend Alacran further south. We also see potential to the north because we believe there's a potential offset to the north as well. And all these targets need to be drilled and tested further. But even at Alacran we still haven't tested some of our priority holes, which would be the depth potential at Alacran, particularly underneath the village area where we hit the high-grade gold hit hole 36 of the 4,400 grams gold and the 10% copper and 25% zinc. We actually haven't done any deep pulls underneath this village area, and we need to understand what's happening there, because there seems to be a lot of mineral intensity in that area, but we just don't have any deep holes there as of yet. So all of these targets will continued to be drilled. But Alacran, any junior would die to have Alacran, but Alacran is just part of what we think is a much larger system, and we see lots of potential in our area for porphyries.

We've got a porphery we know to the east of Alacran called Costa Azul that we still need to understand and drill further. We did have one hole in there historically from 2014 which is around 80 meters around 0.6% copper, 0.5 grams gold. And that starts right from surface. We see real potential for Costa Azul to continue to grow, but that's just one target of 15, 20 targets we see in our district, and we've got to spend the next 12 to 36 months working at these targets and eventually drilling all of these targets, because somewhere in our district, we believe, is a world-class porphyry. We just have to find it. It could be near Alacran, it could be on the porphyry trend, or it could be to the north, to the south, we don't yet know. But we think it's there, and if anyone's going to find it it's the new team that we'll have at Cordoba alongside Robert's expertise and HPX's expertise to go there looking for this porphyry.

Gerardo Del Real: Excellent. Now, let me come back. Again, playing devil's advocate again. Another concern that's been voiced by shareholders has been the fact that Cordoba now will have to spend X amount of dollars to drill, frankly, very expensive porphyry targets. I think that's a fair criticism. How do you respond to that, Mario? Was there ever an obligation for HPX and Robert Friedland to continue to spend in an unlimited fashion forever? Because I think that's the common perception, is that the other option you had was let Mr. Friedland and HPX just continue to spend, and they would. How accurate is that?

Mario Stifano: Well, I don't think that's a fair assessment either, because the joint venture agreement we had with HPX was for HPX to deliver a feasibility study. The most advanced project that we have, which is our flagship project right now, is Alacran. So HPX could focus 100% on Alacran, as I mentioned a little bit earlier, for maybe $10, $15 million, and deliver a feasibility study. Then, going forward, Cordoba would fund its pro rata interests in the project, whether you're looking at a porphyry and you've got to spend $20, $30, $40, $50 million, whatever it takes over the coming years to find the porphyry, we would have to fund 35% of it and HPX would have to fund their 65%.

So under the current structure, I think the one benefit we have, and we've got some really experienced board members on our board, everyone from Tony Makuch who's running Kirkland Lake Gold, which is an extremely successful company, to Ignacio Rosado, who is running Volcan out in Peru, which is Peru's largest silver and zinc producer. The view of the board is, having 100% ownership in this district will allow management and the board to really dictate where we want to put our capital, because at the end of the day, we're all in here to try and really increase shareholder value. No one's going to be happy with a $0.70, $1, even a $2 or $3 share price. We're in this for finding world-class assets. And we'll be able to be a lot more flexible now where we want to put our money to work, whether it's looking for porphyries or Alacran.

From an HPX perspective, if you're a businessman you're going to try and deliver feasibility as quickly as you can so that other shareholders start to invest pro rata alongside HPX. So under the new structure, we have a project, Alacran, that we can take to feasibility while we can also allocate capital how we feel will add shareholder value here. I've got to tell you, HPX is not doing this deal to have Cordoba shares go back to $1.50 or go to $2. No, that does not put a dent into HPX or Robert's personal wealth. We're here to try and create a world-class company. We now have what we think is a vehicle to really grow Cordoba, not only at San Matias, which is Alacran and the other districts, but within Colombia and Latin America. We're now setting ourselves up to be that company that's going to really aggressively go after copper-gold projects in Latin America. Under the old structure, we really couldn't do that as affectively as we will be post-consolidation.

Gerardo Del Real: Excellent. Can you explain a little bit the support that you have from Robert Friedland? I happened to be lucky enough to get on a call with yourself, the gentleman from Sprott, and Mr. Friedland, and he was very vocal about how supportive he is of Cordoba, and the fact that this isn't an exit strategy for HPX and Robert Friedland, that this is, in fact, his way of solidifying Cordoba as the go-to vehicle for exploration in Colombia. Can we talk about the upside that Robert Friedland, in his own words, mentioned in that call a bit?

Mario Stifano: That's exactly it. The reason why we're setting up Cordoba this way is obviously to really advance value for San Matias, but we're setting up Cordoba to really go after additional projects. You sort of sit back and you look at Robert Friedland's history. He's been the most successful mining entrepreneur bar none in our industry. He's found multiple world-class assets all over the world. But in Latin America we still haven't found that world-class asset. This is going to be a key focus for Cordoba, is to find that world-class asset in Latin America.

In Colombia, we see tremendous potential, obviously on our project, but other regions in Colombia. We've been very aggressively looking at projects, and we think we'll be able to put other projects in our portfolio that won't really dilute our shareholders. We're very careful when we structure deals to minimize the amount of upfront payments that we make for properties, but it's not just Colombia. We've got boots on the ground in Argentina, we've been looking in Peru, we've been looking in Brazil, we've been looking in other regions. Because of the success of HPX, people come to HPX to approach them for projects. It's not a scenario where we've got to always go out looking for projects. Robert's looking and HPX is looking at hundreds of projects every month, and they get the cream of the crop projects coming to them.

So Cordoba, under the old structure where HPX would own 36% of Cordoba. If you're HPX and you have a potential for a world-class asset, you're going to think twice of rolling that asset, eventually, into Cordoba if you only own 36% of Cordoba. But post-consolidation where HPX will own 66% of Cordoba, that's a whole different scenario. That is now a much more effective vehicle to be much more aggressive in going after projects all over our region. We think we're going to be extremely successful in doing that, and that's going to be key focus of management, in addition to San Matias. We're never going to take our eyes off San Matias, but we see tremendous opportunity to continue growing the company and allowing Cordoba to really be the premier copper-gold exploration company in the Americas.

Gerardo Del Real: Excellent. Now, you've made very clear, Mario, that you're not in this for a $1 or $2 share price, and obviously that the consolidation was intended to provide greater liquidity, but I think it also provides Cordoba the flexibility of an exit strategy if you were to make a tier 1 discovery. Is that accurate? Is that an accurate way to frame that, Mario?

Mario Stifano: That's very astute, Gerardo. Under the old structure if you own 35% of a project and somebody else own 65% of a project and you have potential M&A opportunities, much more complex to figure out how you do a transaction, or even thinking about the next stage. If you really want to try and get Alacran into development then you need to raise $100, $200, $250 million. How do you do that effectively when you've got two parties?

So under 100% ownership structure now that we have - assuming the shareholders approve it, and I'm hoping we're going to get shareholder approval here, and we expect to get shareholder approval - it'll be a lot easier to sell a 5% or 10% slice down the road on our San Matias project to the Chinese, to the Japanese, or somebody else. We've had lots of interest from other parties on this project because it has caught the market's attention, and it's also caught large companies' attention. But doing that under the old structure would be much more difficult.

If you look at how Robert's financed a lot of his projects in the past, he always seems to sell a 5% or 10% slice of the project, and that's a great strategy that I would like to leverage off as the CEO of Cordoba. If I can bring in the Chinese at a significant premium, that more or less allows us to fund Alacran to development or a good chunk of Alacran to development. That is a fantastic strategy for shareholders, but we couldn't execute that kind of strategy under the joint venture structure, but we can execute it under 100% ownership structure, which we intend to pursue, with the shareholder approval.

Gerardo Del Real: Wonderful. Now, another question that people had is, "Why did the halt take so long to get lifted?" I know that was something that some of my favorite bloggers and newsletter writers wrote about in a quite comedic fashion, to be frank and honest, but there were obviously real reasons for that. Can you explain that to everybody, Mario?

Mario Stifano: Yeah, so simply put, Cordoba and our lawyers and HPX lawyers would have obviously had discussions with the TSX prior to an announcement. What the TSX is always looking for in these types of transactions is to ensure it's not being a reverse takeover. What I mean by reverse takeover is, if Cordoba shareholders own 100% of Cordoba right now, and then post-merger they own, say, 30% of the new company, that's deemed a reverse takeover, and you'll see a lot of stuff in the TSX where it's deemed a reverse takeover.

We wanted to ensure that Cordoba wasn't a reverse takeover. The reason why it wasn't deemed a reverse takeover is because when we did the initial joint venture deal with HPX, the TSX already allowed HPX to be a controlling shareholder, which meant on consolidation we wouldn't be deemed a reverse takeover. When we eventually announced the transaction and we filed all the paperwork with the TSX, they just needed to review the transaction in detail to reconfirm their view that this wasn't a reverse takeover. Once they determined it wasn't a reverse takeover, our shares were free to trade.

It's just a process that was required by the TSX, and you've just got to give them time to run through their process. There was no issues of the TSX not being happy with the structure. There was no issues with the TSX not being happy with the deal that Friedland, or taking advantage of Cordoba's shareholders. Those are just newsletter writers that are trying to get people to stir anger and stir suspicion, but this is just a process. We've got some pretty smart lawyers that we were extremely confident that this would not be deemed a reverse takeover, and the TSX told us about a week later that it wasn't a reverse takeover.

Gerardo Del Real: Fair enough. Let's go back to the exploration potential. Outside of Alacran you have Costa Azul, you have Montiel, you have several very exciting potential copper-gold porphyries. Could we talk a bit about those, and can we talk about where the drilling is and when you anticipate that we'll see more results?

Mario Stifano: Yeah, so Alacran is what we consider part of our replacement/skarn trend, which would be west of our porphyry trend. So our first porphyry would be about a kilometer and a half east of Costa Azul, which we don't know yet if it's related to Alacran or not. We don't think it is, but over time drilling will tell. But basically, that porphyry trend is a 13 kilometer trend. To the north of us we have Montiel, which was a porphyry we drilled in 2014, which we had 100 meters of 1% copper and 0.65 grams gold. Very complex. This whole district that we're in is very complex, which is fantastic from an exploration perspective, because we have a lot of mineralizing events. It's reinforcing to us that there's a big porphyry here. But these big porphyries are never easy to find.

We think we're going to have a world-class porphyry district somewhere along this 13 kilometer trend, or it could be somewhere else, because we have numerous targets outside that trend, to the south. We've got a big area to the southeast of Alacran that looks extremely exciting, that we haven't done enough work yet to put a drill in there, but we're confident somewhere in this 20,000 hectares of land package we're going to have a world-class discovery. It's just going to take time and effort to find it.

I remember when I met Robert back in 2014, and man he was ready. He told me right off the bat, he goes, "Mario, you have no idea how hard it is to find these porphyries. If they were easy, everybody would find them. But when you've got the best team behind you looking for them, if it's there, we're going to find it. I'm confident we're going to find it."

But I want to remind everybody that San Matias, which is the 20,000 hectares, is just the tip of the iceberg. We've got 200,000 hectares of ground here. We surround South32, one of their key exploration targets, we have all the ground around that, which is just to the north of the mine, which we think has potential for copper-gold. We have a coal district. But even around San Matias we've got about another 180,000 hectares of ground.

We locked up everything we felt was prospective for copper-gold. There's no other opportunity for any other company to come into this district. That is why it is so attractive to other parties. HPX saw it right from day one, but other parties recognized what we've been able to lock up here, and this consolidation strategy that we're undertaking would really allow us in the long-term to drive shareholder value when we continue to explore this district.

Gerardo Del Real: Excellent. Any insider selling lately, Mario?

Mario Stifano: No, not at all. Who would be selling at these prices?

Gerardo Del Real: Perfect.

Mario Stifano: In fact, I'd be loving to buy right now, but unfortunately, the way the TSX rules work, you're not even allowed to buy. Buying is a big issue, because they don't want anybody trying to manipulate the share price in this kind of environment. That's just a flat out TSX rule. So I've been trying to go in the market to buy, but I've been told by our lawyers we're prohibited from buying. So as soon as I'm free to be buying, just pay attention, you'll see me going in the market to buy some shares.

Gerardo Del Real: All right. We'll definitely be looking for that, Mario. Now, as far as the drilling goes, we haven't had news in several months. Can you update everybody there?

Mario Stifano: Yep. So we're still waiting on some assays. We anticipate getting those assays finalized in the coming weeks, and getting a news release out in the coming weeks.

Gerardo Del Real: Perfect. Mario, is there anything else that you'd like to add? I think we covered a lot of ground. I really want to thank you for your time and, frankly, just taking the questions and being transparent about the deal, the perception of the deal, and the pros and the cons, perceived or real or not. But I do want to thank you for taking the time and sitting down with me.

Mario Stifano: Well thanks, Gerardo. Thanks for having me. I think, for any shareholder, you want to be as transparent as possible, and I'm a sizable shareholder in Cordoba. Directly and indirectly I own 2.6 million shares of Cordoba. A million of those shares are in direct ownership, and the others are in options. So I'm a fairly sizable shareholder here, and really what I am trying to do as the CEO is I'm trying to create long-term shareholder value. Our industry is never a sprint. It's never about sprinting to find a deposit or sprinting to develop an asset. You've got to have a long-term strategy here to create long-term shareholder value.

That's the nature of our industry. You want to position yourself to find deposits, and eventually to develop deposits, and you want to do it in the most effective way that is really not going to dilute your shareholders. We think this current structure is going to allow us to achieve that, whether it's bringing in strategic shareholders down the road, whether it's the Chinese, the Japanese, whether it's being much more strategic on M&A opportunities. This new structure for Cordoba, we believe will create long-term shareholder value, which is what we're all about here.

Gerardo Del Real: Excellent. Well, I'd love to talk more about the property, the targets, and what the plan is the rest of the year as far as the drilling, the expenditures, and how long the current cash position will last, but let's save that for another time. Hopefully you can join me in a couple of weeks when we get the next set of assays, Mario, and we can dive into that a little bit more.

Mario Stifano: I'd love to. Love to. Look forward to it. Thank you.

Gerardo Del Real: Thank you again. Mario Stifano, CEO of Cordoba Minerals, everybody.