General Base Metals
Kutcho Copper (TSX-V: KC)(OTC: KCCFF) CEO Vince Sorace on Eliminating Debt and Expanding Partnership with Wheaton Precious Metals
Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the president and CEO of Kutcho Copper, Mr. Vince Sorace. Vince, how are you today?
Vince Sorace: Doing great, Gerardo. Thanks for having me again.
Gerardo Del Real: It's great to have you back on. The stock has pulled back a tiny bit. We were flirting with a breakout at the $1.10 level we're back near the $0.80 level. I thought it would be a perfect time to have you back on, because I think the pullback presents a pretty attractive entry point for those that are looking for quality copper exposure with a big time partner backing you.
Now, you had some news last week, that frankly, I think went over people's head. Let me read the headline, and then if you could provide the context, because I don't think a lot of people appreciated the amount of deal making and how beneficial the news was. The headline read:
Kutcho Copper Eliminates Debt and Expands Partnership with Wheaton Precious Metals
I would've assumed that the details would've sent the stock much, much higher. It didn't happen. I know we have markets that are a bit nervous right now, but I think, mid to long term, everything looks great. Tell us a bit about this amendment and what it allows Kutcho to do.
Vince Sorace: Well it was something that we needed to do. We needed to clean up the balance sheet, for a number of reasons. We had this outstanding debt with Wheaton that, three years ago helped us acquire the asset, but it's never good to be carrying over $30 million on the balance sheet for a number of reasons. Number one, interest was adding up. They continued to defer the interest payment. So that was great, but we were paying interest and we were tallying about three and a half million dollars a year in interest. So, that's gone, number one. Number two, a balance sheet with that much debt is an encumbrance to a number of different things, whether it be strategic discussions around things that we're looking at doing, or M&A, or things like that. Guys don't typically want to worry about having to clean that up themselves and get into those negotiations with Wheaton.
So, from those perspectives, it was very important for us to do it. And what happened here was that Wheaton took what was otherwise owed to them in cash. And they basically took 100% corporate and project risk on this now. So with the conversion into equity, that was seven and a half million dollars US, so they're taking the corporate risk on that. And then the rest of it moved into additional stream on the project side. And I just think that speaks mountains as to how they view the asset and the company, because essentially, the only way they get that back is if the project goes into production and they realize it back on their stream. So I think the confidence levels, I believe are obviously high with respect to how they view this asset and the company.
Gerardo Del Real: I mentioned that I thought these levels were a very attractive entry point if you wanted quality copper exposure. I don't just say that because of the pullback in the share price. I say that because of the catalyst that I think will play out in 2022. To me, you're a clear takeout target. You're looking to advance the permitting while simultaneously focusing on optimizing the project economics, which are already pretty robust. Walk me through what comes next for Kutcho.
Vince Sorace: Yeah. A number of things. There are a few avenues to optimize economics even further. As you said, we're really happy with the output and how the project looks right now on an NPV basis. And just to remind everyone, with respect to where copper and zinc has been exceptionally resilient. It looks like we're going to be able to maintain some good pricing on the zinc side. At these prices, we're north of a $900 million after tax NPV and a 41% IRR. But, we're going to look to continuously find other methods of optimizing. One of them is with respect to the ore sorting. We think there's lots of room there to optimize project economics and we'll be doing actually, some of that work this summer as well, and on a number of other fronts.
So, right now we're running a number of things in parallel. Again, optimizing project, moving through apps on permitting through the EA process, finalizing and continuing to work on and finalizing our economic participation agreement negotiations with the First Nations, which is another big de-risk point for this project. So, with all of this now, it is execution. We don't believe there are any red flags in this permitting process. We believe it's a process that we need to go through, but we see how we can get through it. We've got the support of the Nations, and essentially as we continue to move through these, call it points of de-risk, then naturally the valuations of the company should go higher because the multiples should get higher, as you continue to move this towards a construction decision.
Gerardo Del Real: There's also significant exploration upside. That again, I don't think the market fully appreciates and it sure isn't reflected in the share price right now. Do you plan some exploration this year, Vince?
Vince Sorace: We're working on it now. We've got a number of different things that we could be approaching. So, that will be determined in the near future here, but there's a number of initiatives that we're working on this year.
Gerardo Del Real: Sounds like you and I will be talking often in 2022. It's great to have you back on. Thanks for the update. Anything to add to that?
Vince Sorace: No, other than, we're pretty confident in the copper market in general. I think a lot of your listeners are as well. And I think Kutcho's in the right spot to capitalize on that.
Gerardo Del Real: I absolutely agree. Thanks again, Vince.
Vince Sorace: Thank you.