One of my favorite CEOs in the junior mining sector is Fireweed Zinc (TSX-V:FWZ) CEO Brandon Macdonald. Not only is he wicked smart, but he's also a genuinely nice person who runs his company with integrity and rare transparency. I reached out to Brandon earlier in the week to see if he would be willing to have a chat about multiple topics, including Fireweed, COVID-19, and assay turnaround times. Brandon was as candid and realistic as ever, and he remains ever the optimist that base metals will eventually turn around. So, does a 3 month wait for drill results always mean the results are going to be piss poor?.....
Fireweed Zinc CEO Brandon Macdonald on site at Fireweed's Macmillan Pass Project in the Yukon.
Goldfinger: Good to talk to you today Brandon. I think the first question would be how's Vancouver? Are you there right now? How has your life been affected by this COVID-19 crisis?
Brandon Macdonald: Yeah, so I'm at home. We're lucky that we already did a lot of work from home in our group because we've got people living as far away as Squamish. And it's just kind of a situation of, does everyone need to be in the office every day? Normally, no. I'm not a believer in the commuter culture. If I tried to have room in our office for everyone to show up every day, I'd be paying twice the rent. And that seems to me a giant fucking waste of money. So we've generally had a rule for the geologists to try to be in on Thursdays so we can all meet. But honestly, we've been using Microsoft teams to kind of move that online and screen share and that's been just as effective.
So it was a pretty easy transition. Early last week we just or I should say, yeah, I guess it was only last week, I just said like, "Look everyone for the foreseeable future work from home. Don't feel any compulsion whatsoever to come into the office and in fact avoid it if you can." So I went into the office once last week because we had a check run to sign. And that was it. I basically, and I rode my bike in to avoid a transit, didn't even get out of my bike clothes, signed a bunch of checks, took a couple of calls and then left. And that's, it's not bad. I've been, it's nice, I already do quite a bit of work from home, but it's nice to be a little more time here and able to spend some more time with the kids and help my wife out and honestly saving myself what is almost an hour commute either way, every day. Saves two hours a day, so I like that time.
Goldfinger: I think we're all going to be working from home for at least the next month. And I mean, some people are saying this could go on for many, many months. And that sort of brings me to my next question. As a CEO of a junior mining company that regularly has to tap the capital markets to raise capital to do exploration work and to just fund normal operations, how does one manage during this time? Is there any possibility to raise any capital at all right now or something where you're just going to have to wait it out for a few months?
Brandon Macdonald: Yeah, I can raise capital, but probably not beyond my strongest existing shareholders. I doubt I have much in the way of new shareholder interest right now. We're lucky that you look at our share registry, we've got some good shareholders on there, some that are named there, and some that are not. And we can put together money. Is it going to be a robust drill program money? It is most certainly not. So if the capital markets do not recover before summer, it is entirely possible we don't drill this year. And that's an uncomfortable truth, but it's the truth. I think everyone in this industry thinks that you always have to be drilling. And I think at some point you have to say, "No, this is stupid. I'm not going to blow my company up. And so we're not going to drill." And particularly for a project as big as ours, you need a substantial drill program to move the needle. So what's the point of going out there and doing a tiny ass little program that's more risky than it's worth?
Goldfinger: Yeah, I think that's an excellent point that especially in your case with MacPass, like you said, you need a larger program, to really make an impact and impress the market, especially in this market environment, geez, it's incredibly hard to trust this market. So I want to talk a little bit about Fireweed and then just some more general questions about the sector and the market. For Fireweed in particular, how much cash do you guys have? And if you decided to hold off on a capital raise, could you make it to the end of the year if you just did nothing?
Brandon Macdonald: Look, we could conceivably make it to the end of the year if I cut all my staff and didn't pay anyone, including myself or whatever. If we just locked it down. The issue is that I have four full time geologists on staff. If I completely cut them loose and they go find other work, what are the odds I get all four back or any of the four back when we want to ramp up again? So that's the concern. And this is a concern that was raised by my board and actually specifically some of our bigger investors were saying, "Well, what are you doing about staff retention?” Because it's no good to lock things down and then realize you have no ability to spool back up again. So while we could ride out the year without a financing, we won't try to. That just doesn't make sense.
So I guess the silver lining on the cloud of a year where things are really slow is that we're really going to get a chance to deep dive on the data. Some of the older data, clean a bunch of stuff up, really get everything up to best practices. Because we've got so many years of old data here from which still has not been scanned. To really, to clean that up and get ready is good. So Fireweed as a company has been, one of the curses of success is that you're always a little bit behind. You're always kind of on your back foot because just as you kind of get caught up, things get to the next level. So this year, if nothing else gives a bit of a breather and retaining my staff to catch up on that breathing will be critical. So yeah, long story short, we could make it to the end of the year, but we won't try to do that.
Goldfinger: And I guess just one more question about this period of market turmoil that we're in right now. And as far as the sector as a whole I think you guys are in a good spot relative to most companies in this sector. Sure, it'd be nice to have a few million in the bank, but there's no way you could've known this was going to happen the way that it's played out. As far as other companies in the sector, what impact is this going to have across the space and are we going to see some companies just basically fold up shop here in the next few months if this stays like it is?
Brandon Macdonald: I guess it depends on what their burn rate is. For the producers, ironically, the producers that are underwater probably have a better chance of going bankrupt than the juniors, right? Because a big... you can't just shut down a mine and still not have significant cost overheads. Being on care and maintenance still costs a lot of money. And you might have trade payables or whatever else too? Or you might default on loan covenants, etc. where it's actually much simpler for a little rinky dink junior miner to keep going because odds are any debt you have is probably the related parties who are just going to roll it forward and your actual costs can be really shrunk to a couple of hundred grand a year if you're really willing to tighten the belt.
Right. So as we saw over the last 10 years of things have been up and down in the market, there was never a period where we saw a lot of juniors delist despite the fact that so many people wanted to see that. It's just, it's too easy to keep your listing and it's too hard to de-list or, or close up gracefully, I would say. I mean, you can imagine if you think, "Oh, a bunch of juniors should roll up together," this is not a bad idea. You'd save overheads, this would be sensible, but then you're asking a whole bunch of people to leave their jobs. You're asking, your cost of the merger of the roll up significantly exceeds the cost of just kicking the can down the road another year or two. So the whole system is actually geared to dis-incentivizing the exact attrition we need.
Goldfinger: Yeah, that's a great answer. And that's a very good point. Some of these Vancouver companies are like cockroaches. You can't kill them. They just manage to survive and survive and survive despite the fact they are destroying shareholder value over time.
Brandon Macdonald: I don't want to be too critical of management in those situations because it's kind of, it's such a pain in the ass to close up a company. And it's expensive to close a company, right? It's like a, "Well, why don't we just keep going, maybe it'll be better next year." So you end up as this cockroach and maybe you get pushed down to the NEX or something like that. But there's just no graceful way to fail and no graceful and cheap way to fail.
Goldfinger: It costs money to shut down and go bankrupt, I don’t think many people realize that.
Brandon Macdonald: Yeah, yeah. Right. Well, and that's the whole thing. It's like if your assets aren't bad, and in a market like this, it's not like you could say, "All right, look, let's just do an auction for our assets and subtract the cost of closure and distribute the extra proceeds to shareholders and close the company." It's like, well, who's bidding on your assets right now? So you've actually got a totally legit asset that would go no bid. So what's the point of even attempting that? Right. It’s a bit of a dumb situation. So, there are lots of zombie companies out there that are, for all the wrong reasons. There's lots of right reasons where it's just like, "I'm just going to keep this company going because there's no point letting it fail." It's easy enough to run it down the road another year. And if we get any sort of recovery, even the shell aspect of it might have value. So I get why it happens.
Goldfinger: And so now talking about Fireweed in particular. It’s unfortunate about the timing of some things this year, including the fact that you guys got big news two weeks ago about the Yukon government, I guess with some help from the federal government is paying for a lot of the road upgrade that you guys have been talking about for a couple of years now. And you've actually already factored in C$100 million in the 2018 PEA for this road upgrade. Can you tell us about that, is this a big deal?
Brandon Macdonald: Yeah, look, it's a huge deal and because there's first off, it's an immediate reduction in the upfront capital for the eventual construction of the Mac Pass project. That's huge. Second, it shows what I've always said that there was going to be government support and that the community could get behind the road improvements. That's also huge. Now, specifically with regards to the timing of that, of course, we, although I did not know for sure when the announcement was going to be at until the Saturday before, we had suspicion that was coming pretty soon. So we had pushed off our financing a little bit, which now with hindsight was a total dumb move. And with hindsight, right? Like I'm not, not beating myself up over it too much. But the irony is I could have done a 60 cent financing maybe without the road yet.
Now with the road, I might be facing a 30 cent one. And this just shows you the risks inherent with the delaying a financing. And it shows you what, when, when retail investors who have never run a company are saying things like, "Oh, why are they financing now? They should've got the share price up more before financing." Why? They have no idea how risky that is. We made that exact move which was, we've got good news coming we'll do the financing after the good news, and it blew up in our face totally outside of our control. Virtually unpredictable. I mean this is a generational intersection of macroeconomic and pandemic factors that just nobody saw coming. So I don't feel like Fireweed management screwed up, but it's certainly bit us in the ass to push that off.
Goldfinger: I applaud you for your candor, but in all honesty, let's say you did have $3 million or $4 million in the bank right now. Sure, it'd be a little better, especially at a higher share price. But you might not be doing anything this year anyway.
Brandon Macdonald: No. And let's, let's say I was going to do a $2 million financing before the road and that was going to be at 60 cents. Now I'm going to do the same $2 million financing at 30 cents. I don't know if I would do that much now, but let's just use that number for simple math. So before that would have been three and a half million shares out. So I would have gone to 42 million shares, or 41 million shares. Now I'm going to 44 million maybe. This is not the end of the world. I haven't blown up my cap structure. Would it have been better to do it at a higher share price? Of course. Have I irreversibly ruined my cap structure and sent myself down a one way path to oblivion through dilution. No. So we're going to be fine.
Goldfinger: I think that's a really important point. You guys have managed the share structure very well. And it's still under 40 million shares now and this is year three of Fireweed as a public company. That is damn impressive.
Brandon Macdonald: Yeah. Well, one, I'll take a little bit of credit for that. Two, I'll also say like, let's take the 2019 financing for example, $5 million is what we raised with Teck as a lead order. That was basically all that was available to us. If we hadn't had that Teck lead order, I don't know what we would have raised, it wasn't exactly a robust market for zinc juniors already by early 2019. So, so when all that's on the table is $5 million at a time and you've got a healthy market cap, your dilution is limited. I think you just, you may not even have the ability to dilute even if you wanted to.
Goldfinger: Yeah, I think that's something that is becoming increasingly common. There are companies that do actually want to raise some money right now and they're not going to be able to, at least for now. I mean obviously that could change May or something, but right now it's very tough. It's funny, I got sent a pitch deck by a broker last night for a junior with like a $3 million or so market cap, a 10 cent share price. I said, "Man, you've you got a lot of confidence if you could pull off a financing here. I'm not sure anybody's going to be standing in line to be locked up for four months."
Brandon Macdonald: Well, and that's the other thing is there's a psychological factor that we say in markets like this, "The phone is heavy." Like it's tough to pick up a phone and make a call to investors and part of the reasons is you mention. A day like today with how beat up and trashed the markets are. If I phone up an investor and be like, Hey, now's a great time to look at Fireweed Zinc," they're going to tell me to fuck off. They're managing the implosion of their portfolio and they do not want to hear from a junior mining CEO to pitch them on their company. I don't think I'm in a particular mood to make phone calls today anyways, but it's not the right day for it. You got to let the dust settle and then get people excited about the opportunity.
Because a low price and look, there's a lot of companies like ours that have already had absurd value now have extraordinarily absurd value, where when the dust settles, you're going to get some people in and hopefully they're going to make a lot of money when the market returns to sanity.
Goldfinger: And I think, the final comment, I want to make a comment about Fireweed in general. I'm not sure if you know the answer to this off the top of your head, but how much money has been spent over the year by the various operators at Mac Pass to get the project to where it is right now?
Brandon Macdonald: We were trying to work this out and we'd figured that including ourselves, it's something in the ballpark of C$100 million to duplicate the work. Now, and certainly would have been a lot less than that in, you know, 1979 dollars or whenever the money was spent. But we think between all the drilling, geophysics baseline and then you know, all the underground development at Tom, there's not a huge amount of it, but there is underground development there. These are all stuff that would cost a lot of money to duplicate. So the absurdity of now trading at 10 to 15 cents on the dollar for the money put into the project is not lost on us.
Goldfinger: And now for one of the main reasons why I wanted to talk to you is a lot of investors in the sector don't seem to understand some key things about the sector and one of them is how long does it take to get back a set of assays from the lab. There seems to be a lot of poorly informed people on the subject and some people seem to think that you can get assays back in a week. While some people seem to think they always take two months. So what's the truth, the real truth on the timeline for a set of assays to come back from the lab? And are the labs giving you information as they go along? Like even if the hole is not fully assayed, are you getting back a batch of samples every week or two weeks or something that gives you an idea of what the hole is like or does it always come in one big batch?
Brandon Macdonald: No. So there's a lot to unpack in that question because it's, how long do assays take to get back is kind of like that question of like how many angels can you get on the head of a pin? Well it's, there's no way to answer that because it's so situational. What are you assaying for? That makes a big difference. Is your specific lab, local lab backed up? How local are you to the lab? How often are you sending holes out? For a project like ours, we're not, at the end of every day we don't send the core out to go to the lab. It gets sent out in weekly shipments. So, and before it goes out, it's got to be logged and split and all this stuff that in itself, depending on whether you've got an onsite backlog, could take a week or two.
So there's an entire possibility that a hole, a hole might take a week to drill. And that it's not until a week or two after the last bit of that it even leaves camp. So in that situation, it could be three weeks after the drill hole started that it's actually left our camp and then it goes to the lab. And then at the lab it's like, look, is there a backlog at the prep lab? To basically crush and prep the samples. Is it, is everyone doing gold? And then you're getting your ICP results but you're not getting your fire assay results because the fire assay lab is backed up. And per your point of are you getting drip fed the results. Most labs now have an online web interface where you can log in and see sample by sample what the status is, what results are available and even sometimes non-certified results. As in here's the prelim results, these are not certified.
So for a company like us, I don't need the lab to tell me approximately what we have. We have a pretty good idea when the samples go out, whether the hole is well, we have a very good idea of whether it was good or not. Base metals, we can see it and we can XRF and stuff like that. It's very different with gold which is like, "Hey, this looks good. No idea what it runs. If there's not, if you don't have a really strong correlation with something else." But it's so specific and I think a lot of retail investors hear, "Oh it takes two weeks to get assays back." And what they're hearing is it takes two weeks from when it gets to the lab to get the results back.
But that might be the first bit of the results of that batch. It doesn't include the time on site from when you finish the hole to get it to the lab, the transportation to the lab, and then your own internal QAQC once you've got the final results to be happy to put them out. So, yeah, it's just like the one to two week time frame you're hearing is for the most part fantasy. It's just not really achievable. And it also depends on how rigorous are companies being with their data and QAQC, et cetera. If it's a scout program and you're not doing geo-technical logging, you really just quick logging stuff and you're sending it out for assay and because you're just trying to get a sense of what the numbers are, that can be much quicker than someone like ours because, we have a, we need to do everything on our samples because you know, we're doing all the geo-technical work like we're planning a mine because we are planning a mine. So this takes a lot longer to get off site.
But to give you an idea of an issue we had, the first year we were drilling, 2017, we basically sent samples away and then you have samples that were over limit. Now the over limit for lead I think was 4% before you had to do a different test. You can imagine on our project every hole has at least one interval, numerous intervals over 4% lead. And then the double over limit was 20% and we were even ending up in this sort of triple over limit situation where some samples were 40% or more but they were doing it sequentially. They'd finish the batch and be like, "Oh some of these are over limit. We'll go back and do them." And they would go back to the queue to get done the overloaded method. Some of them are double over limit, will go back to the queue to do the double level limit.
So we ended up, but just because it was taking like, I think our last results in 2017 just took ages to show up, ages and ages because of this issue. So 2018 going forward, we basically said you do essentially I think the triple over limit detection method for every sample. You don't wait for to find out it's over limit, you just do it so we could get timely numbers on it. So it made it a bit more expensive, but at least it meant that that all was happening right away instead of having to do this continuous loop of that.
So it's and I mean our last boundary zone hall, one of the intervals we just reported in the news release as being over 60% because it was quadruple over limit or something. They had to titrate it like you would a concentrate sample to figure out what the zinc was in it. But that's, we didn't want to wait for that. So we're like, "Look, it's over 60% it's not going to, pure sphalerite is 65% zinc or whatever. So it's not going to be that much higher. So we'll just, we'll call it 60 in all our numbers and sort it out later." And it ended up being 62% but these things can take time. And high-grade samples in particular, you might want to retest or double check etc. So all of this stuff can really lengthen your assay time.
Goldfinger: So to put a final point on this topic of how long does it take to get assay results back from the lab. Basically it could take as short as a couple of weeks, especially if the assays are rushed, but it's very unlikely it's going to be that fast and it could take up to two months. But when companies are two and a half months, three months without putting out assays would you say generally speaking, that means the results are probably not very good and the company is just waiting for the "right day" to put out this news?
Brandon Macdonald: I think that probably happens less often than you think. It's usually more situational that it takes that long. There can be weird things, although this is generally known company by company and you can ask the management about this, if you're in a country that doesn't have a lab, you know your rocks have to go to a different country. And now you're running into customs issues both leaving the country and entering a new one. So that, I know for numerous companies has proven to be a total nightmare because samples are having to travel the globe and spend so much time in customs clearing before they get sampled.
I would say every conspiracy theory about junior mining management tricks has probably a nugget of truth with some very, very small fraction of companies. But they're generally applied everywhere. It's like," Oh, management's withholding assays. Oh, someone's keeping the price down for a financing." This is not anywhere near as common, it's just simply not common at all for these things to happen.
Goldfinger: They're definitely giving some management teams a lot of credit for being incredibly clever. I don't think many are quite as clever as some people seem to think...
Brandon Macdonald: Is it Hanlon's Razor, "Never attribute to malice what can be adequately explained by stupidity." It's not a big conspiracy, it's just people doing dumb shit and it's sometimes it's not always shit they were aware was dumb beforehand. It’s just kind of with hindsight like Fireweed not financing when we were 60 cents instead of now when we're at 30 cents. It's, sorry. Oops. We did our best.
Goldfinger: So as a final question here, because we're, we're about at the sweet spot in terms of time. Obviously we can all make the pessimistic and bearish argument for zinc or base metals or Fireweed, it's very easy to basically say, "Oh the world's going to go into a very deep economic downturn and zinc is never going to see north of a dollar for decades." So that's an easy case to make. Let's make a contrarian case here for why it might actually be a really good, good time to buy base metals when everybody hates them and zinc is under 90 cents a pound and Fireweed Zinc is trading at 30 cents, about a C$10 or C$11 million market cap. I mean it's incredibly cheap. I basically see that no new mines, no, no new zinc mines are going to be coming online with this price where it's at right now. And then also you're going to have existing mines shutting down, isn't that right?
Brandon Macdonald: Yeah. Look, as best I can tell, including sustaining capital, half the global production is underwater. Certainly at least 30%, probably half. Sustaining capital numbers are hard to find. The cash costs are reasonably well published, so that can't last. And there is not a zinc project out there that has robust returns, including initial capital, like a greenfields build at this zinc price. They just, there's just not. Nobody finances a zinc project if this is your long term price. So that's the opportunity is that we're, we're priced like this is a long term price, but it obviously cannot be. And I was saying to people at PDAC now, that was before gold had been tanked, but I was saying, it's frustrating talking to investors who are saying," Oh, I'm a contrarian investor. I'm into gold stuff," and gold at the time was almost $1,700 bucks. And it's like, "Oh yeah, you're such a contrarian." Golds 1700 bucks and you're buying, you're a contrarian.
Yeah, you'd buy base metals. The base metals are, you've got to figure out which ones are not going to go out of business. When the dust settles, who still has their assets and is in business. And then of those, what's going to get the earliest bounce and biggest bounce. And that's probably the quality play. So whether it's a developer, explorer, producer, you look for the most beat up, quality play. That's a contrarian move. And I'll tell you that takes a steady hand and a brave heart to invest in that these days. But that's where the big returns are going to be medium and long term.
Goldfinger: And then as far as Fireweed goes, I mean it's actually kind of interesting. I've been following you guys almost since the inception, it's been a couple of years now. And right now from my perspective, the project Mac Pass is better than it's ever been since I first heard the story in early 2018. The only thing, and Fireweed Zinc's shares are the cheapest that they've ever been. So the project is the most advanced and it looks the best from a project standpoint that it's ever been. Especially with the government help on the road upgrades. Fireweed Zinc shares are the cheapest they've ever been. The company has the lowest market cap it's ever had. The only thing that's working against you, and obviously it's a big thing is the zinc price, but the zinc price is cyclical. They go in 8 to 10 year cycles. This zinc price won't last forever, or at least I don't think it will.
So it seems to me that this is, despite the fact that it's such a hated sector and it's hard to see the light at the end of this tunnel, you guys have a tight share structure. You don't need to raise a bunch of cash. You could just sort of go to the sidelines for a year if you had to so you don't have to do too much raising and put out a lot of shares here at 30 cents. It's hard for me to see the downside from 30 cents a share. Obviously it could fall further, but really when you look at the market cap and you look at the project, you're not going to get another project of this quality for C$12 million bucks. You're just not, you couldn't find another project of this quality at this price.. And it would make no sense to start a new zinc explorer and try to find something like this because it will cost you way more than $12 million. Is that fair enough?
Brandon Macdonald: Yeah. And that's the kind of absurdity of this is that the project has never been better. We've never been cheaper on a per share or even market cap basis. I mean, when we IPO'ed, we came out of the gate with a valuation higher than this and we didn't even own the asset yet. We still had commitments and shares to issue, et cetera, et cetera. And that's when the resource was half the size, et cetera. So that's, it's another way to think of it is like what is the cost for an explorer to duplicate our success? A lot, given what we talked about earlier on in terms of the money in the ground and this project.
And what would an asset like this, if it was held by a major or mid-tier and they were trying to sell it, what would the auction price for it be? Right now, probably not a lot, but as soon as the zinc market comes back, it'd be one whole heck of a lot more than what we're trading at. So this is, I can guarantee nothing about where our share price goes in the short term because we're in an insanely volatile environment, but medium to longer term, you’ve got to be pretty bullish on our prospects.
Goldfinger: And we'll leave it there. I think very well said and Fireweed is a contrarian, very contrarian opportunity at this point in time. So you’ve got that going for you along with an extremely tight share structure as well as the best CEO in the sector ;).
Disclosure: The author of this article owns FWZ.V shares and may choose to buy or sell at any time without notice.
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