Exclusive Interview with Joe Mazumdar, Editor of Exploration Insights

Joe Mazumdar: Absolutely, Mike. So, I'm originally a geologist and did my undergrad degree in geology at the U of Alberta in Canada, which led to working in the field doing exploration in the Canadian Arctic, British Columbia, and the Yukon for Noranda and others.

I then moved to Australia where I worked for another four or five years; I completed a master’s degree there in North Queensland while working at a gold mine in the Mount Isa District of Central Queensland for a base metal company.

After that, I moved to Argentina where I was based working for several companies doing exploration in Argentina, Peru, Ecuador, and Chile for several major gold and diversified miners for another eight to nine years.

I then went back to school in Colorado where I completed a degree in Mineral Economics at the School of Mines. After that, I started doing finance, market analysis, and corporate development for major mining companies in Denver and also in Phoenix.

In 2010, I moved back up to Canada and began working as an equity analyst for a couple of the brokerage firms. During that time, I met with Brent Cook a couple of times and he spoke to me about Exploration Insights.

I started reading the letter and really liked what it entailed. And so, eventually, I bought it and took it over with my wife, and we've been running it for the last five years.

JM: Mike, I would say, obviously, everyone's pretty familiar with the fact that COVID-19 has pervaded every aspect of society. If we go from production all the way to exploration… we’ve certainly seen a lot of suspension of activities along with a significant number of temporary mine shutdowns this year.

Brazil, Chile, Peru, and Argentina, in particular, have been significantly impacted. And that’s a part of the world that produces a lot of base and precious metals — a repository of many of the commodities that countries like China consume.

As a consequence, we have seen some production shortfalls which have supported prices while offsetting some of the COVID-19 related shortfalls in demand. With China coming back online in the second quarter, we are seeing not only near-term but longer-term issues in regard to copper supply with a lot of these development projects or operations temporarily shut down.

So yes, impacts on both supply and demand for various commodities. Yet, given the overall upward impact on metals prices – especially in the gold and silver market – a lot of the precious metals companies have done quite well in spite of any shortfalls in production as a result of having a higher margin per ounce.

On the development side, the primary issue is with trying to build and construct mines, which obviously requires having a lot of people close together. So how do you do that?

This is having an impact on long-term supply such as the production gap in copper since many of these projects simply aren't getting built right now. Therefore, I am looking at the development side as an opportunity to get involved in some of the more promising projects out there. The key is quality as lenders are not using spot prices of US$1,900 per ounce but lower prices of US$1,400 per ounce.

On the exploration side, I have noted about C$8 billion worth of equity financings by mining companies listed predominantly on the TSX Venture exchange in Canada. Thankfully, a lot of the money is being used to drill targets on projects. But as a consequence of the steep increase in drilling activity in Canada, US, and Western Australia, the assay turnaround times are almost double than normal (6-8 weeks) due to the higher volume of samples and the COVID-19 protocol implemented at the labs.

Hence, if you are investing in the juniors, you'll need some patience as drilling results may take even longer than what we’ve grown accustomed to. For example, a company with a drill season ending now may still be releasing results well into January of next year.

Another issue is that companies that are focused in these severely impacted countries may have a harder time executing their exploration programs. That’s because, oftentimes, you have to go into some pretty remote areas. And these remote communities – which typically don’t have much in terms of medical facilities – simply don't want you there.

JM: Yeah, it has definitely restricted me in terms of travel. I actually haven't been outside the country since my site visit in central America prior to this year’s PDAC event in March.

And the issue is not only the country I may be visiting but also in returning to Canada and having to quarantine for two weeks and being away from my family.

But I am not alone as many people have curtailed their travel plans. I normally do 1 or 2 a month but have been on about 4 since March.

I have been going on site visits more locally in British Columbia. And I just ventured to Ontario a couple of weeks ago which was the first flight I have taken outside of the province since PDAC.

JM: Mike, at the beginning of the year, pre-COVID, the issue was and continues to be the growth of negative yielding debt and expansive monetary policies.

That's why gold is so important.

All of those conditions existed pre-COVID and have now been accelerated as a lot of countries are further expanding their monetary policies in order to keep their economies going including the United States, which is currently debating the execution of another trillion dollar plus stimulus package.

The slowdown in economic growth and expansive monetary policies has been very supportive of the gold price, which is reflected in the strong gold ETF demand and leverage provided by precious metal producers.

Since a lot of these major producing companies such as Newmont and Barrick Gold have maintained their gold reserve prices at lower levels, they're making a lot of money on their current production.

Banks right now, when they're lending companies money to develop mining projects, are looking at $1,350 to $1,400 per ounce gold. They're still well below current gold prices because they want to stay on the more conservative side.

If you're looking at the gold price staying at these levels or going higher, the most leverage will be provided by gold producers. And so we’ve had some producers in our portfolio that have done fairly well like Pan American Silver (TSX: PAAS)(Nasdaq: PAAS) because of that added silver component.

If you like gold, silver provides even more leverage. Silver’s sensitivity to positive movements in the gold price has pushed down the gold-to-silver ratio, which peaked at around 121:1 to about 75:1 right now.

That's been a positive in terms of having a company like Pan American Silver that not only has exposure to gold but also is one of the biggest silver producers in the world. So despite the fact that it had to suspend operations in Peru on two underground mines – which just recently came back online – they still outperformed many of their peers.

Therefore, I'm very positive on those two precious metals, as I was pre-COVID.

JM: Mike, I'm looking at development plays in the gold sector because there's not a lot of companies at that stage, and I think there's going to be more M&A. But what's constraining some of the M&A is, again, COVID-19, and the travel restrictions, the difficulties in doing due diligence, etc.

The most recent M&A we’ve witnessed is the $16 billion combination of Saracen Mineral Holdings and Northern Star. Both are based in Western Australia; therefore, the combination was easy to execute. Because the state has enforced a hard border with other countries and states, it is almost business as usual.

Both companies purchased half of the Golden Mile or KCGM asset. One bought from Newmont; the other from Barrick — and they’ve now consolidated the asset through the merger.

In addition, they have operations in the Yandal region of Western Australia that hold potential synergies. It appears like they’ve executed a Nevada Gold Mines type combination with respect to seeking to consolidate districts while aiming to save AUS$1.5 billion over the next decade by way of the potential synergies of their operations.

Importantly, on the M&A side, they are also looking to acquire additional assets in North America as Northern Star has already secured its footprint here with their purchase of the Pogo deposit in Alaska from Sumitomo.

So there are interesting dynamics in play with M&A, yet some of it is being constrained by COVID. I continue to think we need a lot more consolidation especially at the junior side as well. Companies are looking to add assets at this point because their pipelines are pretty bare from not doing a lot of exploration.

Most major companies I follow spend about two times more on G&A than they do on exploration and as a consequence are very dependent on the juniors to help them with exploration in terms of joint ventures, strategic alliances, or just outright acquisitions if they actually have something significant.

Again, the constraint there is a bit on the due diligence side because – just as I've been constrained in terms of my site visits – those companies have been even more travel limited because they have policies in place that stop them from traveling.

But in saying that, we also saw Newmont and Agnico Eagle pull a joint venture on an exploration program in Colombia, which is pretty interesting seeing two majors getting together on a regional exploration program.

JM: Sure. I mentioned Pan American Silver, which, of course, is a producer. And as you alluded to, Mike, we’re really much more focused on the junior side of the market here at Exploration Insights.

But in any gold market, or really any market for that matter, when you see a rise in the actual underlying commodity, the first ones to feel the impact are the producers. And that’s why we have a company such as Pan American Silver in the EI portfolio.

In terms of gold exploration projects, one of them is Liberty Gold Corp. (TSX: LGD)(OTC: LGDTF) which is one of my top junior picks. The company has a large land package in the Great Basin of the western United States in the southern part of Idaho.

It's open pit and potentially heap leach amenable gold mineralization that is expansive both laterally and at depth. The geological team, which has had previous success in discovering, delineating, and selling the Long Canyon gold project, also in Nevada, for several $billion to Newmont, have found new hosts for the gold mineralization that previous miners did not exploit.

They're drilling with four rigs to try and build out a resource of at least 2 million ounces of gold with a high-grade core of 1+ gram per tonne — so a million ounces over a gram.

If you look at the combination of Northern Star and Saracen – even though I'm not talking about them acquiring Liberty Gold – they’re looking to continue their expansion into Tier-1 jurisdictions. The combination of Saracen and Northern Star gets a premium because 100% of their assets are in Tier-1 jurisdictions like Western Australia and Alaska.

Adding to that Tier-1 portfolio would be a good thing. And I think everybody wants to add more Tier-1 jurisdiction assets, so Liberty Gold is one I'm watching.

Another one is HighGold Mining (TSX.V: HIGH)(OTC: HGGOF) which is looking at high grade underground gold and poly-metallic mineralization at the JT Deposit in eastern Alaska, which had previously laid dormant for several decades.

HIGH is currently drilling with several rigs to extend the known resource of 750,000 ounces in the Indicated category grading 10.9 grams per tonne gold equivalent. The management team has plenty of experience in Alaska.

In terms of gold development plays, I own shares of Bluestone Resources (TSV.V: BSR)(OTC: BBSRF) in Guatemala, which is heavily backed by the Lundin Group.

Bluestone was actually my last site visit outside of Canada before I went to PDAC. It has a feasibility study which has generated a reserve of 940,000 of gold grading 8.5 grams per tonne with 3.57 million ounces of silver grading 32 grams per tonne.

Bluestone is busy optimizing the mine plan and process flowsheet with advisors that were responsible for building the Fruta del Norte underground gold mine in Ecuador while securing underground mining contractors, potential vendors, and long-lead items. Unfortunately, this workstream does not generate many catalysts that draw the attention of the retail sector.

JM: Yes, I do. The thing about copper is that – because companies have been hit by low copper prices for a protracted period of time – they haven't been able to do a lot of exploration or spend a lot of capital on development projects.

And so in terms of the production gap that’s been forecast for 2023 or 2025 – depending on whom you talk to – the question is – are there enough development projects right now that can fill that gap?

And so we need to know right now what projects are out there. What I've been trying to do is gain exposure in the portfolio to these advanced copper assets that fit that window.

I own shares of Trilogy Metals (TSX: TMQ)(NYSE-Amex: TMQ) which is advancing the feasibility stage Arctic deposit – a district scale volcanic massive sulfide style copper dominant polymetallic deposit – with South32, a major diversified miner based out of Australia, in the Ambler area of west-central Alaska.

And they also have another project called Bornite, which is a different type of copper deposit that's at the resource stage. The permit to build a major road to provide access to the district has been approved.

I have another called Regulus Resources (TSX.V: REG)(OTC: RGLSF) which is in Peru. Regulus has a significant resource, and its neighbors – Buenaventura and Southern Copper – also have a significant resource. Therefore, the combination of those two resources could generate a Tier-1 copper asset in Peru that’s at the resource stage.

JM: Mike, at the beginning of each year – pre-COVID this year – I put out a letter regarding the dynamics of the current market along with the metals and commodities I’m aiming to gain exposure to. This year, in addition to gold and silver, my focus has been on metals that help to reduce greenhouse gas emissions.

Copper is definitely one of them as it is the most liquid market. And we went over some of that exposure with the copper companies I just mentioned.

Another is Class 1 Nickel, which are sourced from nickel sulfide deposits that can be more cost effectively converted into nickel sulphate for batteries.

Back in 2019, I bought shares of an Australian ASX-listed nickel explorer – Blackstone Minerals (ASX: BSX) – that’s just released a scoping study and resource on their Ta Khoa Nickel-Copper-PGE project in northern Vietnam.

When we talk about the penetration of electric vehicles, nickel is an important metal to have exposure to with battery evolution holding higher nickel loadings.

The other one to gain exposure to in the interim – in between now and the penetration of electric vehicles – is palladium in terms of fuel efficiency, the catalytic converters, on non-diesel engines. Palladium loading is now higher to essentially meet emissions standards before the penetration of electric vehicles becomes more significant.

And so, palladium is another one to gain exposure to.

Any one of these kinds of ultramafic deposits – like what they have in South Africa and Russia – are what companies have been looking for all around the world to diversify themselves from being overly exposed to the political risk of operating in South Africa and Russia.

That's why Impala Platinum bought North American Palladium. It gives them an asset in a Tier-1 jurisdiction, northern Ontario, that is a highly productive, mechanized bulk tonnage underground mine.

In terms of palladium, that’s what I’m looking for. And therefore, I bought shares in a company called Clean Air Metals (TSX.V: AIR) which is developing two palladium properties in northern Ontario called the Thunder Bay North Project.

Importantly, the chairman of Clean Air Metals is the former CEO of North American Palladium that sold the Lac des Iles mine to Impala. Clean Air’s project is the first one I’ve visited outside of British Columbia post-COVID impact since March.

JM: Well, Mike, the thing is… we're seeing a lot of them because you have these major conferences that basically hit everybody's calendar. But in saying that, there are a whole bunch of other conferences that are also doing similar things.

And I think now, the more difficult thing is to try and get some kind of differentiation between all of the conferences because you basically have a lot of the same people talking. You also have many of the same companies presenting. So how do you differentiate yourself? Especially the conferences that are investor related and have companies presenting.

As you know, PDAC is a different sort of forum, and, as well, The Vancouver Roundup, which takes place every January.

So that's really the question because a big part of these conferences, especially PDAC, is to go and meet and talk to people face to face… to organize meetings for potential corporate development… to go over investment ideas, etc.

That's something you really can't replicate with these virtual conferences no matter what you want to say about the platform or anything like that.

The Gold Show as well as last month’s Precious Metals Summit were both virtual. So, I find myself being a bit inundated, and I'm sure a lot of investors do as well, by the sheer number of conferences.

And companies – with virtual conferences being more cost effective and not requiring travel – are doing more and more of them. So that's a positive in the sense that you can see a lot of companies in a short period of time without having to travel.

But in terms of having those real face-to-face conversations outside the formal meetings that are booked at the conferences — those aren't happening anymore. And I'm sure the corporates are also having a harder time meeting with juniors and trying to do deals without knowing the principals on a one-to-one basis.

JM: Yeah, I do. Because, you know, there's only so much you can do virtually. You can do due diligence and peruse a data room and things like that online.

But really in the end, if you're going to pull the trigger on something, you really have to get out to the project site to make sure it matches your own models and also with what you’re seeing online.

And there's really very little substitute for that especially when you're going to make a major investment.

JM: Sure. The letter is located at www.ExplorationInsights.com. We put together a new website several years ago, and we have a lot of new material in terms of articles. You can also access all of my latest interviews — including this one soon.

And then if you want to subscribe, it's pretty easy. You just hit the SUBSCRIBE NOW button on our homepage. Your subscription is monthly or annual and cancelable at any time if it doesn't meet your needs.

The focus is on the mining sector and investing in it — and it's what I'm buying and selling in the market.

It has components where you get access to all of the letters historically over the last decade. And you also get exposure to the portfolio, which we have as open positions, closed positions… that sort of thing.

We also have a members’ forum where people can post comments or questions about specific companies or certain market themes that I respond to when I can.

JM: Well, actually it's been the same for the last 13 years, it's still US$140 per month or US$1,680 a year.

We have quite a mix of subscribers. Geographically, we have subscribers from the US, Canada, Europe and also a lot from Australasia.

In terms of the types of subscribers, we have retail investors, which might include some of your audience members. We have high net worth individuals, company CEOs, the exploration departments of major mining companies, as well as institutional equity and private equity.

So we truly run the gamut with respect to our subscribers.

JM: Absolutely. Any time, Mike.