I have been a shareholder of Excelsior Mining (TSX:MIN, OTC:EXMGF) on and off over the last several years. I have also written a couple of articles about the company, and made Excelsior one of my tax loss silly season picks at the end of 2018. Overall, Excelsior shares have offered some good trade setups and plenty of chances to buy low and sell high over the years. However, the stock has pretty much gone nowhere in the last four years.
MIN.TO (Weekly)
Four years ago, Excelsior had just filed its final feasibility study for its Gunnison Copper Project in Arizona. This feasibility study showed a US$807 million net present value (NPV) using a 7.5% discount rate and a US$2.75/lb copper price. Copper was roughly $2.60/lb four years ago, today it is north of $3.50/lb. Excelsior also didn’t have its state and federal permits four years ago, Excelsior had not closed a project construction financing package, and the Gunnison Well Field had not been built.
There were still many question marks and uncertainties in February 2017, and the copper price/outlook were not nearly as strong as it is today. Yet, MIN shares closed at $.88 on January 30th, 2017. They closed at $.94 yesterday.
What gives? Gunnison is a fully permitted copper mine in a great jurisdiction (Arizona), and copper is in the midst of a strong bull market trend. How can Excelsior shares be stuck in neutral?
The answer is multi-faceted and has a lot to do with the fact that 2020 began with a lot of optimism, but quickly fizzled into what was pretty much a write-off year for Excelsior. Covid certainly made everything more challenging, however, Excelsior also decided to take many months in order to complete a wellfield optimization to improve efficiency for long-term production performance.
The Gunnison Project is currently in the early days of ramping-up copper production, which is expected to achieve the rate of 25 million pounds per annum later this year as the first phase of a multi-staged development plan.
Last week, Excelsior issued a news release announcing the sale of 90,000 pounds of copper cathode to Trafigura Trading LLC and CEO Stephen Twyerould added the following:
"Copper sales are expected to steadily increase as we advance the Gunnison ramp-up towards full production. I congratulate our entire team, and in particular the SX-EW operations crew on achieving this notable milestone. Our SX-EW processing facility has been on care & maintenance for several years; therefore, the initial high quality of the Gunnison Project cathode is remarkable and reflects our commitment to achieving technical excellence throughout all aspects of our business."
This was undeniably good news, so it was surprising to see the share price drop precipitously over the past week. Some investors may have been spooked by an analyst report that was issued on January 27th by the investment website, the Crux Investor. I am a subscriber to “The Club” at Crux Investor and I have enjoyed watching many of Matt Gordon’s interviews with company CEOs.
In light of the recent share price decline, I read the report and I have also spoken with Excelsior management about the content and the possible motivation behind its issuance. For those wishing to read the report, it is entitled “How Old Tech With New Applications Can Ruin Your Investment” and can be found on the Crux website. From the title, you can surmise that the report is not favorable.
As an investor, I believe it is good to try to poke holes in company pitches and dig deeper while conducting due diligence. We also need more contrarian voices and dissenting opinions out there, it’s part of what makes a market. However, when trying to poke holes we should also strive to hear both sides of the story while analyzing facts.
I believe the article on Excelsior written by someone at Crux is full of holes and doesn’t do a good job of informing its readers with the real story. For starters, the piece does not list an actual author, so I’m not sure who the author is or what their credentials are. Many of the errors that I highlight below would be embarrassing to anyone with a basic geology degree, and no matter what the background of the author, many of the errors listed below could have been avoided with some time on Google. The company also informed me that Crux did not reach out to them prior to releasing the report, which seems odd because there are several attempts to contradict facts that Excelsior has presented in news releases and corporate presentations.
I am not a geologist, I have an economics and financial markets background. My interest in writing this article comes from the fact that I have followed Excelsior for more than five years, both as a shareholder and blogger in the junior mining sector. I believe the recent sell-off in Excelsior shares is overdone and I have used this discount opportunity to accumulate shares. I may choose to buy more shares, or sell my existing shares, at any time without notice. I believe MIN shares are closer to fair value at C$1.50, and in an optimistic scenario (strong copper price and meeting key production milestones on time), I could see the share price rising as high as C$3.00 in the next couple of years.
Back to Crux and why I believe this article was written on shaky ground, and may have unduly spooked Excelsior shareholders. For ease of reading and for brevity, I will highlight in italics 11 areas in the report that I believe are misleading.I was aiming for 10, but the errors kept coming.
CRUX: “The Gunnison project again proves the risks of being a pioneer in adopting new technologies.”
The Crux report does not offer proof; it offers an opinion. There is no “new technology” at play here, ISR is a mining method used the world over to mine a variety of commodities, and Excelsior’s mine set-up is no different than most.
CRUX: “Excelsior management states quite accurately in their corporate presentation that the method is a very established mining method for Uranium, but this is slightly disingenuous. Uranium leaching is usually done with an alkali solution, whereas copper leaching is done with acid.”
This is a very concerning critique because the author is calling Excelsior management liars for stating a fact. The fact is, the majority of uranium ISR mining is done with acid, and the analyst could have easily found this out with a quick Google search. Not a good start.
CRUX: “The forecast metallurgical recovery is based on laboratory tests combined with simulation models, not on empirically established factors through a pilot scheme. Therefore, the claim by Excelsior that the injection solution recovery (“ISR”) metallurgical parameters have been established at a feasibility level of confidence sits awkwardly with six assumptions in the section on mineral processing and the 16 mentions of “estimates” or “estimating” in that section of the technical report.”
A pilot study is not essential for determining metallurgical recovery. Excelsior spent millions of dollars on numerous metallurgical tests of various types and determined the metallurgical recovery based on the rocks! Does the author think the rocks lied? Of all the issues, metallurgical recovery is very low on the risk profile; the copper Excelsior is mining is exactly the same as the copper that was previously mined at their Johnson Camp facility just a mile away, and broadly speaking, exactly the same copper being mined all over Arizona; all of it clocks in with a metallurgical recovery of around 80% total copper.
CRUX: “Potential investors should note that some large players (Magma Copper, BHP and Phelps Dodge) investigated and then rejected further work on this project. Magma Copper actually got to the point of carrying out test work before choosing not to continue.”
Considering that the Crux analyst did not reach out to Excelsior at any point to fact-check their report, I am confident that Crux did not reach out to Magma or BHP to get their take either. I asked Excelsior management specifically about this issue and was told by CEO Stephen Twyerould, “Magma were moving forward on all their ISR copper projects in Arizona before BHP purchased them. BHP bought Magma for the huge Kalamazoo deposit at depth at San Manual, and never had any intention of doing the smaller ISR projects, neither ours nor Florence, so it’s no surprise they divested them. At Gunnison, Magma was in the process of completing a new round of metallurgical studies when they were purchased, and the final metallurgical report was completed on BHP letterhead; this metallurgical testing was to form part of the new feasibility study they were about to commence. We know all this, because we contracted a lot of the old Magma team to help us in the early days of Gunnison.”
CRUX: “The assumed Sweep Factor of 80% for rock with a Fracture Intensity with 20%-50% core pieces of less than 10 cm seems overly optimistic.”
I have personally seen the core; I am certain that the Crux analyst has not. The areas of the deposit that are deemed to have a high sweep efficiency are highly fractured. Excelsior has discounted vast amounts of the deposit with lower fracture intensity. These areas represent hundreds of millions of pounds, so the overall model is likely conservative, with plenty of room for upside. The weighted average sweep efficiency in the Feasibility Study for the entire deposit is only 74%, so cherry picking one number is not particularly relevant.
CRUX: “Whereas there is mention of clay minerals close to the intrusive/skarn contact, exactly where the highest-grade copper mineralisation is present, their effect on permeability seems to be ignored.”
The only mention of clay minerals in the Feasibility Study is in relation to a low-grade RIND limited to the intrusive/sediment contact; this does not even form part of their mining zone. Excelsior “ignored” the effect of clays on permeability because there are no clays associated with the Gunnison Project. Perhaps the Crux analyst is thinking of Taseko’s Florence project, which has clays because it is in a rock type that forms clays when it weathers. Skarns, like the one at Gunnison, do not form clays when they weather or are altered.
CRUX: “The amount of acid consumed seems to totally ignore the possibility of carbonate minerals and iron oxides affecting the total required. Acid consumption of 10 lb of acid per lb of recovered Cu is very low compared to conventional (non-in-situ) copper leaching operations.”
Had the Crux analysis bothered to do any research, they would have discovered that the average acid consumption rate for conventional copper leaching operations in Arizona is around 3-5 pounds of acid for each pound of copper produced. As a reference point, Florence is projecting around 5lbs per lb of copper. Excelsior’s test work gave an acid consumption of approximately twice the conventional average for Arizona. Why? Because the host rock has carbonate in it. Excelsior clearly did not ignore the impact of carbonates on acid consumption.
CRUX: “The economic valuation seems to ignore the cost of drilling the overburden.”
Wrong again. The author needs to read the feasibility study; these costs are included. This is really starting to get embarrassing.
CRUX: “The reference by Excelsior to Taseko’s nearby Florence ISR operation, where a pilot programme proved to be successful, is misleading. The Florence deposit is a copper porphyry that was uplifted to surface and subjected to weathering and oxidation processes before being covered by younger lithologies.”
Where to even start with this one. This is not the first time in the Crux report where the author calls Excelsior a liar and then proceeds to get the facts completely wrong. The geological event that created the Gunnison Project and the Florence Project, and all other ISR copper projects in Arizona, are exactly the same. Yes, Florence is a porphyry and Gunnison is a Skarn, but they are both oxidized sulfide deposits, and they were both oxidized in exactly the same way. It’s called the Basin and Range Province. Both deposits originally formed miles below the surface. Both were uplifted and had the rocks eroded off the top exposing the sulfide to the surface and oxygen (that’s why they call it “oxidized”). Both were subsequently dropped down below the surface during the Basin and Range tectonic event. A secondary tectonic event occurred millions of years after the sulfide deposits formed, and that broke them up and dropped them below the surface. This is a very rare geological occurrence, which is why you only find ISR copper projects in the southwestern US and Mexico; this did not happen in Chile or the other copper provinces around the world.
CRUX: “The company has had to completely overhaul the way in which it leaches copper making the feasibility study irrelevant.”
This statement is absurd. The view from Excelsior management is that the current pathway to full production is now just a matter of time and money.
And finally, from the conclusion:
CRUX: “The fact that copper has been produced is merely a marketing ploy and it will remain irrelevant until the company has proven its sustainability at a particular level and the cost of production. The Gunnison project again proves the risks of being a pioneer in adopting new technologies. When the go-ahead for any new project, let alone one that incorporates a new technology, is given without substantial empirical evidence and pilot plant work, investors should realise they taken on extremely high risk. Caveat Emptor.”
Is this not true for every mining project on the planet? Every project that is in the ramp-up stage can only “prove” it can do it once it has done it. Why is Excelsior any different? Mining is risky business, and investing in the junior mining space is risky, made all the worse by reports like this, but the idea that all of Excelsior’s data has been rendered moot is ridiculous. The Crux report has clearly spooked a lot of Excelsior’s shareholders; these investors have been influenced by a pseudo-analyst who may have a hidden agenda, not to mention a hidden identity. I look forward to Excelsior proving the report to be wrong, and that is the true Crux of the matter.
I asked Stephen Twyerould for a final comment and he added, “Over the last 10 years we’ve taken this project from inferred resource all the way to production ramp-up. The team have faced all sorts of challenges and roadblocks, and with good management and decision making, we’ve overcome them all. That’s what good companies do. Ramp-up is no different; there have been challenges, not to mention COVID 19; I’m sure there will be more. It’s slow, we’ve said so twice now, but at this stage all that’s required is some patience and confidence that our team will deliver as they have done so often before.”
I have purchased MIN.TO shares on the open market in recent days as I view the downside risk (roughly 20% in my assessment) to be minimal relative to the potential upside reward (~70% to my C$1.50 fair value and 200%+ to my longer term bull case scenario price target of C$3.00).
MIN.TO (Daily)
The $.84 gap fill price level also happens to represent strong long-term support/resistance - this is an attractive entry point and MIN shares are short term oversold within the context of a broader uptrend (rising 200-day moving average).
I am bullish on base metals. I am bullish on copper. I am bullish on Excelsior Mining and I would not be surprised to see the company uplist in the US at some point over the next 12 months.
Disclosure: Author is long MIN.TO shares at the time of publishing and may choose to buy or sell at any time without notice.
DISCLAIMER: The work included in this article is based on current events, technical charts, and the author’s opinions. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. The views expressed in this publication and on the EnergyandGold website do not necessarily reflect the views of Energy and Gold Publishing LTD, publisher of EnergyandGold.com. This publication is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions. Junior resource companies can easily lose 100% of their value so read company profiles on www.SEDAR.com for important risk disclosures. It’s your money and your responsibility.
