Headwater Gold (CSE: HWG)(OTC: HWAUF) CEO Caleb Stroup on Drilling High-Grade Gold Intercepts with Newcrest, Plus 100%-Owned Projects, in the Western United States


Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the president & CEO of Headwater Gold — Mr Caleb Stroup. Caleb, great to have you on. Your timing couldn't be better, sir. I was joking with you a bit off air… we have gold at US$2,020 per ounce with some pretty solid momentum. How are you today?

Caleb Stroup: Yeah, doing good. The gold price always helps my mood.

Gerardo Del Real: Well look, I don't know that it always helps my mood… but when it's at US$2,020 — it most definitely helps my mood! 

Let's get into the Headwater story. Look, it's very rare to have a company that has — and we'll get into the share structure in a bit — a great share structure with great shareholders and then also has what I've got to describe as a hybrid model. And you actually describe it that way in your corporate presentation: a hybrid discovery model.

You are systematically exploring seven 100%-owned projects. But you've also attracted the capital and technical expertise of Newcrest, among others, on several other projects. So I want to talk about that unique approach. 

And I really love where you're looking to make and advance these discoveries because you're already onto a couple. So I know that's a lot there. Before we get into that aspect of it, can we talk a bit about your background?

Caleb Stroup: Yeah, sure. I'm a geologist. I've got a little over 15 years experience, about half of which was with major mining companies and half of which was with junior explorers. Always on the exploration side of things. So I'm an explorer. That's what drives me, is making new discoveries, and finding new deposits. 

Most of this has been in gold but I've also worked in base metals, and geothermal, and all manner of other different things as well. We started Headwater almost four years ago now. A group of exploration guys, like myself, got together and put this vision together and it's been going quite well.

Gerardo Del Real: Let's talk about that very unique hybrid model that you apply to the company. I find it fascinating for two reasons. One, I typically — there are exceptions to everything — but I typically am not the biggest fan of just straightforward project generators for the simple fact that, if you make a great discovery, you end up giving so much of it away, right?  

But we also know that the model is really efficient at minimizing dilution, mitigating risk, generating operating fees, and retaining — depending on how the deals are structured — some upside to a discovery.

What I really like about Headwater is, you kind of get the best of both worlds there, right? You have a partnership with Newcrest that I want to discuss in a bit that really allows for some aggressive exploration and some exploration that clearly is leading to discoveries. 

But also, simultaneously, you're retaining 100%-ownership of multiple projects, thereby providing, I guess, kind of the best of both worlds. Can you speak to the model a little bit?

Caleb Stroup: Yeah, I think you summarized it pretty well. That was a deliberate plan that we put together from the beginning. As I've said, Headwater is something that we put together from scratch and thought a lot about these things and how to optimize the business model. This isn't something we just put together overnight. It was a couple years in the making as a private company and then been listed for just under two years now.

This was a big component of it. Having this hybrid model where, as you say, you have a big portfolio of projects to start with. That's very important. We know that early stage exploration is a high-risk endeavor. That's just the nature of the business. So to have any reasonable expectation of success, you need to be playing a numbers game at some level and testing a bunch of different targets.

Going at that alone, especially in a softer market, is prohibitively dilutive, especially when you can't keep your valuations up to a level that allows you to raise the capital necessary to test these things. So that's where the partner funded component comes in. 

We've attracted Newcrest, which is a really great partner; one of the biggest mining companies in the world but also very well-known for their technical expertise and aggressive exploration strategy. So it's a really great fit there.

But also, I tend to agree with you on some of the downsides of a pure project generator model where, if you don't have success early, the longer and longer you go, the size of the prize that you need to find for your minority interest to be valuable to shareholders from a shareholder perspective gets bigger and bigger and harder and harder to find. 

So having 100% pure exposure concurrently with that partner-funded exploration really mitigates that. You can deliver shareholders pure upside through the self-funded exploration while at the same time minimizing your dilution and financing risk with the partner funding and have the ability, in all markets really, to tell a good story and to advance your good projects.

Gerardo Del Real: What is Headwater's current market cap?

Caleb Stroup: We're sitting, I think, at about C$0.45 now, which would translate to about C$28 million.

Gerardo Del Real: Yet, you have a partnership with Newcrest, an earn-in agreement, that could result in exploration expenditures of roughly US$145 million. That's in US dollars. Now, that's assuming everything goes perfectly. We know it's a high-risk, high-reward business. 

You mentioned Newcrest's reputation for being technically very, very astute. But when I look at a potential agreement of US$145 million and the market cap that you have now, and then I realize that you have these multiple 100%-owned projects that have a lot of merit on their own, and I look at gold at US$2,020 today with, what looks like to me, the potential to break out to new all time highs here in the short term — I can't think of a better time to help tell this story.

Caleb Stroup: Yeah, everything is in flight. We've got the projects. We've got significant upside for our shareholders both on the partner-funded side and the pure 100%-funded exploration side. In a good market, those are the sorts of things that, if they already have momentum, they tend to outperform in a better market. So hopefully we're moving in that direction.

Another big component I've been harping on for a few years now is just the lack of early-stage greenfield exploration that's taking place in the business either by majors or junior companies. There is a pipeline problem with these majors. 

In a good gold price environment, we all know that they want to grow. There's a supply issue here. So being somebody who has already got a portfolio of projects and demonstrated success on many of these, I think we're really well situated for a good market and a good situation that seems to be shaping up.

Gerardo Del Real: On the Headwater side, and correct me if I'm wrong, but I believe that you're exploring seven 100%-owned projects, correct?

Caleb Stroup: Yeah, that's about right. We have a portfolio of 11 or 12 projects total, four of which are under earn-ins. It's a very dynamic portfolio where we're always bringing in new projects, cycling out underperforming projects, divesting of certain projects either through sales or even dropping claims. We're not afraid to do that. But yeah, that's where it sits about now; seven projects.

Gerardo Del Real: The focus there on the 100%-owned projects that you're exploring, what does that look like here for the next couple of quarters?

Caleb Stroup: Well, our Katey project right along the Oregon-Idaho border is, in many ways, the flagship asset of the company. That's one that we kept out of the Newcrest earn-in deals. It was one where we had some pretty fantastic early success immediately after listing.

We drilled two holes into this project. One of them hit about 15 meters of just over 6 grams — with about two meters of about an ounce per tonne — in what looks like a high-grade epithermal feeder system that had never been seen or explored before. It sits there right now with one drill hole in it.

So we're now funded. We raised some money a little over a month ago, and so we're now funded. We've got about C$4 million in the bank in that program. Offsetting that Katey drill hole will be one of the bigger components of our 100%-funded exploration this year. 

So we're very excited to get back up there and see what this thing looks like along strike and down dip. But so far, it's shown us everything we wanted to see.

Gerardo Del Real: Now as far as the partner funded exploration, the Newcrest earn-in, that's on four projects, correct?

Caleb Stroup: That's right. We have four projects currently funded by Newcrest. We drilled two last year, last fall. So this deal was put together not even a year ago in August of '22. 

We got to work right away and were able to drill two of those four projects last fall. We’ve had some pretty tremendous success at our Spring Peak project. We’ve still only drilled 10 holes but 4 of the 10 hit greater than 15 grams per tonne of gold; seven of the 10 hit over a gram per tonne of gold. Again, this is a brand new discovery, early-stage story. So those are pretty good hit rates.

The thing in particular that we found is, one zone that we drilled — and there are only four holes into it — and all four of them show a very predictable envelope of mineralization with high-grade epithermal veins; exactly what we're looking for; between 2 and 2.5 meters of some pretty good commercial type grades; 10 grams per tonne up to 70 grams per tonne in these high-grade band of veins.

So that will pretty clearly be one of the big focuses — the big pushes for this year — will be getting out there and drilling that main zone that we discovered, called the Disco zone, along strike and down dip. We'll be drilling that off with multiple intersections on several different drill fences and chasing it down dip. It’s still wide open down dip.

Then, there are some other holes on the property, scout drilling from last year, that also hit some high-grade that remains to be followed up. So there's a lot to do out there at Spring Peak, and we're getting things ready right now to hit the ground running later in this quarter. We've had a record snowfall year this year in the western US, so we're watching that closely. But I think we'll be able to get out there in early June to get going.

We're still working through the final budgets with Newcrest, and all of these results just came in relatively recently. So we’ve put together a plan, and it looks like we're going to be looking at a significantly larger program this year. 

I'm currently putting together a plan and schedule to run five drill rigs between all of our projects on the Newcrest side and our 100% stuff through the summer. So five drill rigs makes a lot of footage and a lot of tests. It'll be a busy year for sure.

Gerardo Del Real: That's a lot of catalyst over the next several quarters at a time where geopolitical volatility continues to rise. I want to make sure everybody's absolutely clear that all of your projects, and your focus, is in the western US. Is that accurate?

Caleb Stroup: Yeah, that's right. We talked about the hybrid model. But equally important are a couple other aspects of our business model. These projects are in the western US, as I said. Nevada is our main focus. 

So these new discoveries… this isn't the jungles of South America or something. This is road accessible projects in a tier-one mining jurisdiction. That was always the big focus: looking for high-grade, big assets that the major mining companies want to build in a place that they want to mine — like Nevada. All of our focus is in situations like that in the western US.

Gerardo Del Real: Lots of drilling, lots of projects, lots of partner-funded drilling. A lot of leverage, 100%-owned projects on, I should note, existing discoveries, right? Katey, for example, is something where you know you have something. You're just trying to define how big the scale of that is going to be. 

It sounds like you and I will be chatting frequently. I enjoyed the update. I enjoyed getting to know the company a little bit more. Looking forward to having you back on, Caleb. Anything to add to that?

Caleb Stroup: Yeah, no, I think we've covered the high level here. Yeah, that's the key is that we've got this business model and this plan. That's all well and good… but the key thing is, we've demonstrated that it works. We've made two new discoveries in a short period of time since launching the company. 

And now we're positioned to go and advance these with a good treasury and a great partner who's going to be putting some big budgets towards exploring these things. So everything is all lining up.

Gerardo Del Real: In an industry where there's been years and years — and, frankly, we could say over a decade of not just underinvestment in, especially, greenfields exploration — but then, the misallocation of capital. 

I remember the last couple-of-year bull market in the gold space, there was a lot of capital that was misallocated, which led to the many years of smaller budgets and less quality exploration. 

I think Headwater and the team are positioned perfectly to take advantage of the premiums that quality discoveries are going to command. I'm looking forward to having you back on, Caleb. Thank you so much for your time today.

Caleb Stroup: Alright, thank you.