Categories: General Market Commentary / Precious Metals
Topics: General Market Commentary / General Precious Metals

Generation Mining (CSE: GENM) CEO Jamie Levy on the Marathon Palladium Project in Ontario: “We Have the Team that Can Build the Next Palladium Deposit in North America”

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the President and CEO of Generation Mining (CSE: GENM)(OTC: GENMF), Mr. Jamie Levy. Jamie, how are you this morning?

Jamie Levy: I am well. How are you doing? And good morning to you. Everything's great where I am.

Gerardo Del Real: Thank you, Jamie. I am well also. It's a different kind of summer this year. The "Sell in May, go away" mantra that is typically followed by those in the resource space is not applicable this year. We definitely have a market. 

It's getting tougher and tougher, frankly, to find stories in the resource space that have excellent management, good share structures, still present great value, have scale and the know-how to be able to deliver meaningful catalysts in the near and the mid-term. 

Generation Mining actually checks every single one of those boxes, so I'm excited to help tell this story. Before we get into it, can we talk a bit about your background, Jamie, and then we can talk about the project and the team?

Jamie Levy: Okay, that's great. Well, thank you, that's a very good intro. Myself, my background, I've been President and CEO of Generation Mining for just over a year now. This was a spin-out of an older company called Darnley Bay. We acquired a zinc asset in Northwest Territories called Pine Point. We ended up selling that to Osisko at the beginning of 2018, and they didn't want to pay us for our exploration assets, so we got a SpinCo. Once we had that SpinCo we worked out a deal to acquire this Marathon Palladium Project from Sibanye, which we ended up closing in the beginning of the summer, about a year ago today was when we closed the acquisition. 

So my background is Pine Point, Darnley Bay, and before that I was Vice President of Trading over at Pinetree Capital, and did a bunch of other work for mining companies over the years.

Gerardo Del Real: Let's talk about the team just a bit. I can't help but notice that Kerry Knoll is the Executive Chairman and Director. Can you speak to his background? Because it's pretty impressive. I know he doesn't typically get involved with projects and companies if he doesn't see a meaningful exit strategy. Can you speak to Kerry's experience a bit? And obviously in the future, I would love to have him on and chat with him as well.

Jamie Levy: First of all, Kerry is a friend. He's a business partner for the past 7 years. He was the one that asked me to become President because the former CEO was getting old. So I came in. When Kerry told me, like you mentioned earlier his track record, it wasn't a question of when, it was right away. I'm ready to go. He offered me the job and I'm like, "Oh my God, your background, your pedigree is amazing." As a horse race lover, you look at his sort of track record, he's pretty good here. I mean, his background had Glencairn, which ended up getting taken over by B2 Gold. He had Wheaton River, which got spun out into Giustra's and Telfer's GoldCorp. His big one was when he got into molybdenum in 2004, a company called Blue Pearl, which I think most people remember had one of the largest RTOs into Thompson Creek, a private company. 

So he's just very successful. His background being – he's not a geologist or an engineer – but his background as a journalist for The Northern Miner, it has really helped him in understanding and helping with a lot of stuff that is very pertinent today about digital marketing and just getting to the information out there. So he's very stellar. Can I go over the rest of the people on the team?

Gerardo Del Real: Absolutely, absolutely.

Jamie Levy: Kerry is Executive Chairman. We just hired a Chief Operating Officer once we had closed our last financing. Drew Anwyll spent about 8 years over at Detour Gold, which is probably one of the biggest open pit mining projects in Canada. He was there from the beginning. He left there around two years ago. So he has quite the experience. He's starting to do the trade-off studies with us before we start the feasibility study. His background, being at Barrick and Placer Dome before that, he's not an old guy, but he's worked a lot. So he seems like an old guy, but his background, everyone we talked to says he's a fabulous guy and he's just done fabulous work over the past two, three months. Hasn't slowed down at all during COVID, he's able to do all he can from his home office, which is great.

Our Vice President of Exploration is Rod Thomas. His background is with BHP and NEXA as senior Exploration Geologist. And also John McBride, another geologist who has been on the project since 2007. He left when it got acquired by Stillwater, then he went to over to Marathon Gold. He's a young geo and he loves this project and he lives up in Marathon. So it definitely helps to have him in there. 

A couple other people, notable is Tabatha LeBlanc. She also came over when we acquired the assets from Sibanye and Stillwater. She'd had been on the project since the mid-2000s as well. She's a biologist, but has done all the environmental work and all the relationships with the indigenous groups over the years.

Gerardo Del Real: That's an excellent overview. It's a heck of a team. Let's get into the asset because frankly it's a heck of an asset, right? The Marathon Palladium Project in Northern Ontario is the largest, undeveloped palladium deposit in North America – and jurisdiction matters when it comes to palladium. Before we get into the economics, which are pretty, pretty substantial for the project, can we talk about what palladium is, how it's used and why it's important moving forward?

Jamie Levy: Sure. I'm not a palladium expert. But the palladium market, 85% of the usage is in the auto-catalysts for the cars. Palladium is a precious metal. Palladium goes into the loadings, into the catalyst, which reduces the pollution into the environment. It's been mandated in China and Europe to increase the loadings from 3 grams to 5 grams in most cars, coming up in the next couple of years. Canada and US are already at these stringent requirements. So the demand for palladium is down, obviously with COVID coming around, the car sales have fallen a little bit. They have increased in China over the past month. I think Europe is starting to rebound as well. So that's on the demand side for the palladium.

On the supply side, it comes out of mostly Norilsk in Russia, South African mines and then there's two mines in North America, the Stillwater Mine in Montana and the Lac des Iles Mine that just got taken over by Impala. So we have two South African-owned palladium deposits. We are the only advanced palladium development story that I know of in North America.

Gerardo Del Real: And that's where that jurisdictional advantage is pretty important, right? Because there's not a lot of, quote unquote “friendly sources” for this type of project with this type of scale around the world. Would that be accurate, Jamie?

Jamie Levy: That's very accurate. Canada doesn't really talk about strategic metals, but the US government has talked about palladium and platinum or PGMs being a strategic metal along with some rare earths. So they don't have to rely on supply from Russia, who I believe is still friendly with the US now, but obviously other people are saying otherwise. And South Africa is a friendly country, but they have lots of issues with the unions. There's lots of issues with the power, never having enough power. So they're sending a lot of people underground. It's very tough to expand mines and to have people underground when the power grid isn't very secure to keep the safety for their employees. 

So that's why I believe Impala had come up to take over Lac des Iles in Canada, which is about 300 kilometers away from us, for $1 billion dollars last year. And Sibanye bought Stillwater back in, I believe 2016 or 2017 for their Stillwater Mine in Montana. So the supply side, it seems to be the supply of it isn't so secure nowadays, as you mentioned.

Gerardo Del Real: Let's talk about the project. You have a significant resource. You have impressive economics tied to it, a whole heck of a lot of news moving forward and we'll get to that in a bit. 

But tell me a bit about the resource in place. I understand that most of it is in the measured and indicated category, which of course is a higher confidence category. I believe you acquired a 51% interest and you have option to increase it to 80%. Can you explain to me how that works, Jamie?

Jamie Levy: Sure. Last year we closed the acquisition from Sibanye where we gave them $3 million in cash and $3 million in shares, that was Canadian, to purchase 51% ownership in the Marathon Palladium Project. So as of that day, we own 51% and we were the operators. Over the next 4 years, we have to spend a total of $10 million on the project, not in the ground, just on the project itself to get to 80%. Once we're at 80%, which we've spent about $4.5 to $5 million of that so far. So we'd hope to be, by the end of the year, to be up at that 80% level.

Gerardo Del Real: You got to work immediately on the project. You completed a PEA within 6 months of acquiring it. I know that you've initiated the feasibility study. Tell me a bit about the resource. It's a large project, it's got some platinum, it's got some gold, it's got some copper, which isn't insignificant there. But of course the main event here is the palladium. Can you tell me a bit about the resource and the numbers from the PEA?

Jamie Levy: Sure. The numbers in the PEA I'll get into to in a second. I just want to talk about the global resource of the Marathon Palladium Deposit. The majority of it is actually coming from the Marathon pit. There's two other periphery deposits called Sally and Geordie. So if I can put the three deposits together, we're just over 3.8 million ounces of palladium. Then we have another 1.2 million ounces of platinum. We have just under 500,000 ounces of gold and we have over 1 billion pounds of copper. And if you were to do a palladium equivalent on that, that puts it to be 8.6 million ounces of palladium, measured and indicated. Then we have another 915,000 inferred. So it's a very large global resource. 

When we were working on our PEA, to answer the other question, we didn't use the whole resource. Two other deposits hadn't been drilled off, the Sally and Geordie. The Marathon deposit had a total of 180 million tonnes. We decided to only use 90 million tonnes within the PEA.

Gerardo Del Real: And despite that you still have some impressive numbers. Can we talk a bit about the after tax net present value, which I think comes in at approximately, using a 5% discount, about $871 million Canadian. I think if we use recent spot prices, you're somewhere over $1.5 billion Canadian with a ridiculous 45.8% after tax IRR, approximately. You have a market cap, Jamie, of $43 million Canadian, approximately. So that's the opportunity here, right?

Jamie Levy: There is a disconnect between our NPV and our market cap. We're at a huge discount to that. We need to keep getting people like yourself and some of your readers or listeners to hear the story because we're a relatively new company. I think another issue is a lot of people don't realize that platinum, palladium, they're PGMs, are part of the precious metal group. They're just similar to gold. There's less supply of it than there is gold. Obviously it's used differently than gold is, but we just have to get out there and tell people that if we were a gold company, we'd be trading at a way higher multiple.

So we just have to keep informing people what we're trading at. So if we're trading at a $45 million market cap, even at using the $1,275 palladium price that we had in our PEA, we're still trading at a big discount to now. So we have to keep getting out to tell them the story. And when we work on our feasibility study, we're just doing the trade-off studies now, we're probably going to be able to use a higher price. And we're hopeful that the feasibility numbers will be similar if not better than the PEA price.

Gerardo Del Real: Let me play devil's advocate a bit and then ask you all the questions that typically lead to why there's a disconnect in valuation when there is this much of a disparity. How's the infrastructure on the project?

Jamie Levy: Since we've been interviewing all these consultants to help us out on the feasibility study, everyone has said, "Oh my God, you guys have done the right thing. You have found a project next to road, next to power, next to a town." That's why our CapEx, we believe, will be a lot less than a lot of the other mining companies that are out there. We don't have to move roads. We don't have to build the town. Everything is all there for us.

We're in a town of Marathon, which is about 300 kilometers east of Thunder Bay. It's on the north side of Lake Superior. We have two power lines that connect to the property. Again, we have an airport, there's a road right to the project. There's a town that used to have 5,000 people. Now there's about 3,000 people. There's a big gold mine that I'm sure most readers or listeners know, it's called Hemlo, which is about 30 kilometers to the east of us. And there's mines all around us. So the infrastructure is very good. That's why we're excited to have this project.

Gerardo Del Real: I mentioned the market cap was approximately $43 million Canadian, give or take, $44 million today. How's your cash position? Is the market front running you because you're hurting for cash and have to go back to the market sometime soon?

Jamie Levy: No, we just closed a financing. I believe it was in February of 2020 for just under $11 million. And we had some cash before. So we're just over $14 million in the bank right now. So we're fully funded. A little exploration program this year, which we'll probably get into and the completion of the feasibility study. So we think we'll have enough money to last us through to the end of 2021.

Gerardo Del Real: So about a third of your market cap is backed by cash?

Jamie Levy: Correct. Yes.

Gerardo Del Real: That's interesting. 

Jamie Levy: And sorry to interrupt, just to give some of your listeners some of the history of this project. Stillwater had acquired this project from Marathon PGM in 2010 for $118 million US. And that's when palladium was trading around $500 an ounce. Today palladium is trading closer to $1,800. So the price is fourfold from there. We're basically trading at a quarter of that. So there's a big disconnect between that. If you could make the comparison there that it's $150 million Canadian, we're trading at $40 million Canadian and palladium prices have quadrupled since that time.

Gerardo Del Real: Let's talk catalysts here. We're in mid-June now, what do you have planned for the second half of the year? I know you just initiated the feasibility study here, the trade-off studies. Can we talk about what to look forward to? You mentioned an exploration program. Walk me through that, Jamie.

Jamie Levy: The summer plans are again, we've been doing the trade-off studies. Drew, as mentioned, our Chief Operating Officer, just worked finalizing who's going to be doing the tailings and doing some of the engineering work. So we hope to have the press release of that very soon for the formal of that. We started to do some flow sheets processing with SGS. We put that in a press release a couple of weeks ago. We should be starting our exploration program in the next week or so. Some news will be out on that. We hope to do some drilling and some geophysics as well, but there's going to be constant news flow for metallurgical work that will excite some, but maybe not a lot, and we hope to have some drill holes out. And we hope just to be able to update the feasibility study and the main catalyst where I think we should get re-rated from shareholders and from analysts will be on the completion of the feasibility study.

As mentioned earlier, we completed the PEA quickly because it was based on feasibility done studies in the past. So we're hopeful that we'll be able to get a feasibility study out by the first quarter of 2021. So about 6-8 months from today. I think that's when we will get re-rated. So maybe we'll get up to 30 or 50% of NPV, that is what some analyst have told us that we should be rated at. So that's what we think that the re-rating will come from is when we get their feasibility study completed and released.

Gerardo Del Real: Jamie, a project of this scale with the infrastructure advantages it has, the economics tied to it, that it has, frankly, it screams take-out target. Let's assume that you don't get taken out. You're going to have to raise some capital if you decide you want to build this. Obviously you have the team in place to be able to move that forward. 

Can we talk about some of the shareholders, your key shareholders? Because I know who's on that list. It's a pretty influential list of people that if the feasibility study just matches what the PEA was able to produce, you're going to have a lot of checkbooks available and at your disposal. Can we talk about some of those shareholders?

Jamie Levy: Sure. Be happy to. Well, I'll start at our newest insider would be Eric Sprott. I think most people knew who Eric Sprott is. So he just got involved in it. I don't know if he saw the value in it, or I don't know if he saw what he likes about precious metals. We know he loves precious metals or what he thought about palladium going into a big deficit. So we've got Eric Sprott in. The previous financing and this last financing, we've got Osisko Mining to put money into it. We have some relationships with the management up there. They like the project. They thought it was a screaming buy. So they put some money into. We've had Zebra Holdings, which is the trust companies for the Lukas Lundin's family. And he got in originally as a zinc asset and he's continued to participate in most of our financings here. All these guys are 8 to 9% holders or shareholders. 

And then we have Sibanye-Stillwater. When we took over the project from them as operators, we gave them $3 million in shares, in stock. So they're an 8.5% shareholder of the company as well. And if people don't know who Sibanye-Stillwater is, they're the largest PGM, I believe the largest platinum producer and the second largest palladium producer in the world. They do almost 4 million ounces of PGMs plus gold a year. So, whether they would take us out or whether they would back in, cause they do have a back-in, right? We're uncertain.

What we're trying to do is we're trying to get the most robust project that's out there. And if the numbers are like what they were in the PEA, we don't see an issue on getting financed. Whether the CapEx is $200 million, $600 million, if it's economic people will give money when you start getting into the 30, 40% IRR numbers. So there's a lot of money out there when you get started getting return of capital that high.

Gerardo Del Real: Agreed. I want to thank you for your time, Jamie. I want to leave listeners and readers with one last quick point. For those of you out there that hear the word palladium and aren't quite sure what to make of it, I want to just simplify things. Gold currently trades at $1,719 an ounce here in the US, palladium is trading at $1,859 an ounce. If you just substitute palladium and insert the word gold, there would be approximately 8.66 gold equivalent ounces. Again, substituting the palladium and the gold word out on a project that's got a market cap or a company that has a market cap right now of approximately $45 million and an NPV after tax Canadian using today's spot prices of approximately $1.5 billion Canadian. It's one of the better stories from a value perspective and you got the team to get it across the finish line. So just food for thought, people. Anything you want to add to that, Jamie?

Jamie Levy: No, I appreciate your time. Please have a look at our website, have a look at our presentation. There's a lot of information that we didn't go over here, including some of the directors. I think we have some really solid directors from Phil Walford, the old President of this company when it got taken over by Stillwater, to Cashel Meagher, who's the Chief Operating Officer over at HudBay. We have a very diverse board of directors that's going to help us take this over the line here.

So, we're in the process of completing a feasibility study, but we're actually in the process of building a mine. So we have the team that can build the next palladium PGM deposit in North America. So we're excited. We think it's great times and you know, COVID has hurt a lot of people, but we're able to keep plugging along here and work from our home offices, and the site up in Marathon is going along well. We appreciate your time and please, any questions, email or call me, I'm always around.

Gerardo Del Real: Excellent. We'll make sure to put a link up and you mentioned an exploration program and the catalysts moving forward. So I'll make sure to have you back on, if you can make some time for us, Jamie, and we'll talk about community relations, social license. We know how important that is. And I know you've all done some great work on that front, and I want to get into that in a future conversation. Thank you again for your time, Jamie.

Jamie Levy: Thank you. I appreciate it. Take care.