Categories: Precious Metals
Topics: General Precious Metals

Zacapa Resources Ltd. (TSX-V: ZACA)(OTC: ZACAF) CEO Adam Melnik on Unlocking Shareholder Value Via the Drill in the Hotbed of Gold Discovery in Nevada

 

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the CEO of Zacapa Resources — Mr. Adam Melnik. Adam, it is great to have you on. We chatted off air yesterday. I'm excited to help tell this story. How are you today, sir?

Adam Melnik: I'm doing fantastic, Gerardo. It's a pleasure to be here speaking with you.

Gerardo Del Real: Well, let's get right into it. Before we talk assets, before we talk about catalysts, before we talk about share structure — and we'll get into all those things here in a bit — I would love for you to maybe share with our audience a bit about your background.

Adam Melnik: Happily, Gerardo. I've been participating in the mining industry for the past 15 years, post engineering degree, post business school. Cut my teeth working underground and in some of the biggest open-pit mines in Canada and also worked with Canaccord Genuity on the brokering side. And that, really, very early on in my career, set the tone, if you will. 

So after almost a decade working in the United Kingdom in London with Canaccord Genuity and some large, diversified producers such as Vedanta Resources, I've returned to Canada to focus my efforts on closing the supply/demand gap on the copper and gold metals outlook, if you will.

I’m very excited to have been honored to lead Zacapa for the last year and a half here, Gerardo. I think we've reached a really important inflection point. We started off as a porphyry copper story exploring for tricky new porphyry deposits in a well-picked-over territory in Arizona. 

And we're now at a position where we have two permitted gold drill projects in Nevada and Idaho. And I think it's a really compelling time to own our stock as we go and advance those two drill programs forward at South Bullfrog and Miller Mountain.

Gerardo Del Real: You mentioned two commodities that I have a lot of time for right now; one being copper, one being gold. I think gold is a coiled spring waiting to jump and leap. I think copper is going to get on a very, very strong run here. And look, it already has in some parts, but I think a US$6, US$7, US$8 a pound price here in the next several years, given the geopolitical uncertainty, given the supply crunches that are materializing already — I don't think it's out of the cards. So I say all of that to say that I think your timing is absolutely perfect to be able to get the story out to a broader audience.

Can we talk a bit about the main focus and the flagship and how you're going to get that value that both you and I privately feel exists in the portfolio right now that's not being reflected in the market cap?

Adam Melnik: Absolutely, Gerardo. That is a story we need to tell much broader and much louder here. It's really not being reflected in our share price right now. Our cornerstone gold project is called South Bullfrog. It's a very interesting project in the heart of the Beatty District, which is really an emerging area in a very well-established mining jurisdiction of Nevada. 

Very quietly, a gold super major, AngloGold Ashanti, has been swallowing up smaller companies and projects like Corvus Gold for half a billion Canadian and Coeur Mining's properties in the Beatty District for C$200 million recently. They now have visibility on 10 to 15 million ounces and are building what will be the new Cripple Creek for that company and will be a significant step change in their overall production. 

They currently produce about 3 million ounces of gold a year, and the new operation they're going to have in the Beatty District in the coming years is going to be very impressive and represents potentially 25% growth for that company's production output.

The next largest player in the Beatty District is Augusta Gold. Augusta has gone from picking up Barrick's old Bullfrog and Montgomery-Shoshone operations to having also purchased the Reward Mine from Waterton for US$45 million last year and now has visibility on production and cash flow in 2023. 

So the Beatty District has really gone from being a couple of non-core deposits with marginal ounces to having 10 to 15 million ounces of new discoveries and four new mines that will be in production in the next two years and drill bits continuing to turn. There are upwards of 20 drills operating around the clock at exploration programs and development assets being run by majors and mid-tiers. 

And the best way to get good beta to this district and a potential discovery in this district is by owning Zacapa shares. Our market cap is currently C$5 million to C$6 million, and, arguably, all of that value is implied for our position at South Bullfrog, and that's pre-discovery.

So we've had to work very hard, very diligently at this project. We staked this project during the pandemic under the nose of AngloGold, Corvus, Coeur, Kinross, and Augusta, who are all operating in the district. 

We now have done four geophysics surveys and multiple rounds of geochem sampling programs over the most interesting areas. And I'm very proud of the work that our team has executed on. We now have two target areas on the property that are permitted and ready to go out and drill, and that's what we intend to do this quarter.

Gerardo Del Real: So just to be clear, you have a C$5 million market cap. You have a permitted, ready-to-drill gold asset in, I would say emerging, but it's not emerging, it already is a significant gold district that happens to be in one of the single best addresses on the planet for having gold projects and gold ounces. There's a lot of upside from C$5 million to significant discovery at South Bullfrog.

Adam Melnik: I couldn't agree more, Gerardo. We've been diligently working behind the scenes, quietly making sure that we've got our targeting and our permitting aligned so that when we do go to market and tell our story again, we've built sustained momentum in our shares as well and make sure that people really appreciate the value that could be at depth here at South Bullfrog.

We really like this district. The next smallest play is Augusta Gold, which has a market cap of C$100 to C$150 million, depending on the day. And we're a great way to get exposure to a potential discovery literally in the center of this district where we're 5 to 10 kilometers from four new mines in the next two years where AngloGold is investing over a billion dollars. Coming up in February, they'll have a new resource update for Silicon, Merlin, and their consolidated properties from the Coeur Mining property acquisition at Crown and Sterling. 

They'll have a consolidated resource here in excess of 10 million ounces. They're going to be building a world-class, Tier-1 mining complex in the Beatty District, and that's definitely underappreciated by the market. So there are many reasons to own our stock.

Gerardo Del Real: South Bullfrog is clearly the immediate focus. You mentioned the market cap being at roughly C$5 million. When I'm looking at share structure, I always like to know how much skin in the game management and directors have. It looks like you're just under 30% of outstanding shares. Is that accurate?

Adam Melnik: That is accurate. You'll notice public reports that our chairman and members of our board, including myself, have participated in every raise, every financing we've completed, including pre-IPO. And recently, our chairman has been demonstrating his conviction in our strategy and our targets and the potential for gold mineralization at both South Bullfrog and Miller Mountain by purchasing over 15% of the company in the market, Gerardo. 

So great inside-owned ownership; great conviction. You'll see no sell reports from our management team and our board of directors. We know what lies beneath here and we're really excited about the future and what this drill program at South Bullfrog in particular holds.

Gerardo Del Real: And remind me again, when do you plan on initiating this drill program, Adam?

Adam Melnik: Yep, we've given guidance that we intend to initiate drilling in Q1, which gives us the month of March to get the drills turning, Gerardo. So we're working on a final commercial negotiation with a number of drill contractors. And we also have a small process underway to potentially sell a royalty for this project to help fund the remainder of the drill program — and that process is yet to complete. 

So there are a few milestones we need to pass before getting a drill bit turning there, and we're looking at non-dilutive ways to execute on this drill program.

Gerardo Del Real: Well, it sounds like there's some deal making going on behind the scenes. I'm looking forward to seeing the progress there. I am really looking forward to this drill program. I'd be remiss if I let you go without talking about the copper exposure because I know you have the two gold projects. 

Clearly South Bullfrog is the near-term catalyst with drilling kicking off here, hopefully, in a month or so. But I have to ask about the copper exposure because there is some copper exposure that, again, I don't think you're getting any credit for right now.

Adam Melnik: Absolutely, Gerardo. We've given the market guidance in Q4 of 2022 that we intend to spin out our copper assets from our company. We reflected on important feedback from our investor base post being public for approximately one year as of last week, and we received three points of feedback. And one of the largest points was that investors would like pure play exposure to our gold projects or our copper projects — but not both in the same portfolio.

So we are enacting a plan and are working on a commercial arrangement as we speak to spin our copper assets into a new public company, and that company's shares will be dividended to our existing Zacapa shareholders. Zacapa will persist as a gold exploration company focused on South Bullfrog and Miller Mountain, and our copper assets will be advanced in a separate entity. 

We're very excited about the potential and are getting more than fair value for those assets given the current prevailing copper price in excess of US$4 per pound. So we’re very excited. By owning Zacapa Resources today, you will have exposure to South Bullfrog, Miller Mountain, and the upcoming exploration work our team has been doing at both Red Top and Pearl.

Gerardo Del Real: You get copper exposure, folks, you get gold exposure in one of the single best addresses on the planet for a gold deposit. By the way, it's surrounded by millions of ounces of gold that's seeing hundreds of millions if not billions of dollars of investment in the region. You get a top-notch management team and you get all of that for C$5 million in market cap value. 

I love the upside here, Adam. I am looking forward to having you back as the news progresses and as you initiate that drill program. And I suspect we'll be chatting about that creative non-dilutive way to advance some of the company's goals. That sounds like deal making in the background. But I know you can't comment on that, so I'll save it for another time. Anything to add to that?

Adam Melnik: Look, Gerardo, it's been a long time coming. We owe our investors a significant discovery here and we're very excited to go out and deliver on our drill programs. We have planned and permitted at South Bullfrog and Miller Mountain. We'll have consistent catalysts with news flow from drill results from gold projects and an exciting announcement about a spinco on the copper side coming in the near term. 

I would encourage our existing shareholders to sit tight and be patient and give us that opportunity to release and increase some value, and for new investors to very much get involved in what will be a very exciting year for the company.

Gerardo Del Real: Adam, great having you on. Let's chat soon.

Adam Melnik: Thank you, Gerardo. I appreciate your time.