It is my pleasure to provide a transcript of a conversation with Mr. Glenn Jessome, President and CEO of Oceanus Resources (TSXV:OCN, OTCQB:OCNSF). This conversation took place in Q1-2017 and is full of valuable information about the company. Watch for additional content going forward.
Please note that this transcript contains forward-looking statements and is provided for general information about the company. I hold shares in the company, and was compensated to prepare and disseminate this material.
Oceanus Resources is a junior mining company focused on the El Tigre Project in Mexico. The company has 125M shares issued and outstanding, with 167M shares fully diluted. The market cap is approximately $28M, with $2.8M cash as of December 31, 2016. You can find out more at the company's website.
PB: Hello, Glenn! Thanks for meeting with me here. How are you?
GJ: I'm doing well, enjoying the weather here in Vancouver and pleased to see things picking up a bit in the junior markets.
PB: Can you please tell me a bit about your background?
GJ: I am a securities lawyer by training, based in Halifax. I have been working with resource companies out of Halifax for about twenty years and we have found some very large open-pit, heap-leachable deposits in Mexico and Africa. We have a wonderful technical team out of Halifax that found and developed three mines, which all went into production. It was that team, and the team that I put together at Etruscan, that was tasked with finding another one of these in Mexico. We believe that have found one and are excited to get out there to tell people about it.
PB: Anything we should know about those past mines -- are they still in production?
GJ: Yes, they are. Some of the technical team behind the first mine, called Ocampo, was the main asset for Aurico Mining for a long time. It is a large mine site that has been estimated at 5M+ ounces of gold equivalent in the past. Even after $2B of metal was mined out of it, Aurico actually sold it to Carlos Slim for about $750M.
GJ: Now, you're a little younger, Peter, but some of the audience may remember a company called Etruscan Resources. They did some great work in Africa over 15 years. They found and built a number of open-pit heap-leach projects in Africa and, in 2010, Endeavour Mining acquired all the assets that the Etruscan team had built up in Africa. Those assets are very important to Endeavour Mining today.
GJ: The technical team behind Etruscan Resources, who built all those mines in Africa, was the same group that took Oceanus Resources public. The geologist, Dave Duncan, was the founder of Oceanus. The Mining Engineer, Bob Harris, and the CFO of Etruscan, Glenn Holmes, were really the group that built all those mines in Africa, which were sold to Endeavour Mining. That management team is all with us at Oceanus, and has some additional technical assistance from a group of geologists in Mexico that found those other mines I mentioned.
GJ: That is where we started -- with a management team that has experience building a company through mining and the goal of finding a particular type of deposit. We think that we've found it in the last year with the El Tigre project.
GJ: Looking at that map on page 5 of the presentation, you can see that we are in the Sierra Madre. We are in Sonora, Mexico. That's mining country. We are among some of the furthest northern projects in Mexico. We're only about 100KM from the US border.
GJ: Please understand that it wasn't rocket science how these large open pit, heap-leach deposits in Sierra Madre were found over the last 20 years. Once Mexico opened up and modern mining technology came along, the vast majority of these projects were found over old Spanish mines from the 17th-18th century. The Spanish went after the 12-18 inches of veins of silver, which had kilograms-per-tonne type of material. After that, the modern mining companies started working on the disseminated gold and silver surrounding the veins. This is no different, but the Spanish never found El Tigre!
GJ: At the turn of the century, a bunch of Americans found the El Tigre deposit. They put it into production around 1900. In about 30 years, that mine produced 67M ounces of silver -- all underground. The stopes were five feet wide and they were looking at 12-18 inches of high-grade silver. All that came along with 350,000 ounces of gold, which was all worth about $2B at today's prices. Then the '30s came, silver went to pennies and the mine was mothballed. Our website has some nice pictures and details on all of that.
GJ: The mine was a 1.5KM long and had 14 levels. It plunged and followed the high-grade clavos, which is an ore shoot, down to 450m. We're not looking at going underground right now. We have an old mine and we think that, with the exploration we are doing and have done, we will be able to prove that this is another big open-pit heap-leachable deposit in Sierra Madre. We should be coming out with our maiden Resource Estimate soon.
GJ: You can see a map of our claims in the presentation. There are a lot of things to like here. First off, it's 35KM long. You can see the north-south trending fault that goes through all these big deposits. When we acquired it at the end of 2015, it had been consolidated beautifully by the prior owners. There are no royalties on it, which could be of great value to us down the road.
GJ: There are no Ejido, who are the native people in Mexico. It can be an issue, but there are no Ejido here. This is ranchland. We have a great relationship with the rancher with exploration agreements in place. We are 15KM from a 40KM-long reservoir and 18KM from high-power transmission lines, which were built to service some of the largest copper mines in the world located to the west of us. The Mexican Government built that infrastructure to help development in the area and we can tap into that. There is a lot of water onsite since the old mine is flooded from the 7th level down. We have as much water as we need for exploration, but the additional water nearby may prove helpful down the road.
GJ: Everybody asks how accessible is it? And what about the drug cartels?
GJ: Our technical team is based in Hermosillo. Our guys get up in the morning around 6AM and drive to site, all the way on the roads, and are there in early afternoon. It's very accessible, but it is desert and arid lands – nothing grows there. There can be no crops grown by persons who deal with drugs. We're 40KM off the main highway on a dirt road. We are not in a transportation corridor. In the past, we've had projects where that's been an issue. There's none of that here. The closest town is 35KM away. We've ticked so many boxes to start with.
GJ: Now, most of what we are going to talk about today is just that little red circle in the middle of our claims. Please keep in mind how much more land we have to explore, nearby.
GJ: In 2015, we decided to acquire El Tigre Silver, which owned this deposit. El Tigre Silver had raised $10M from 2010 to 2013 and drilled around 10,000 meters of HQ core. Major Drilling did it and it was kept in a secure core shack on site. They did not see this deposit as open-pit, heap-leach. There are three silver veins there and they spent their time looking for the fourth one. The beautiful thing is that they left us 10,000 meters of core and much of it had not been assayed.
GJ: The Etruscan team and our geologists in Mexico had experience with open-pit heap-leaches and they all said "if we get that core and assay it, then we could see hundred meter widths of great grades for an open pit mine".
GJ: We signed a letter of intent to acquire the company in September 2015 for $6M. We gave up about 16M shares of our company for it. It took most of the year to get it closed with plan of arrangement and shareholder meetings for everybody. We closed at the end of December 2015 and began exploring in February 2016.
PB: What a time to be closing a deal!
GJ: We raised $2.5M at the end of 2015, but we only had $1M of that left. There was about $1.5M that was required to be spent to bring the project back up to speed. We cleaned it up and I gave the keys to my Canadian and Mexican technical team in February 2016.
GJ: I asked my team: "What's the plan?" They said that the first thing to do was re-log this as an open-pit heap-leach project, rather than a silver underground deposit. We did that and here was the vindication. The first thing we did was to fully assay the 60 holes they left for us. It took us 6 months to do that and we put out three press releases in March, May, and June of 2016. It was pretty clear we were on the right track when I got a call from Mexico on March 6th or 7th that the first hole came back at 127 meters of 2.16 g/t gold equivalent, with 1.8 g/t real gold.
GJ: At that point, we knew that our hypothesis was well-proven. We assayed all the old holes and put them in the model. The results were consistently 100 meter widths in hole after hole of over 1 g/t gold equivalent.
GJ: Cantor Fitzgerald then approached us and we took their geological analyst to do a site visit. He got back in June and by the end of June, we closed a $5.75M bought-deal financing with Cantor Fitzgerald. Cantor Fitzgerald have initiated coverage in September with a good analyst report. PI Financial also sent their geological analyst on the same trip and they also took part in the bought-deal financing. Their analyst out of Toronto has also initiated limited coverage.
PB: Great. It can be so hard to get the street’s attention. That is important.
GJ: By the time all of this happened, we had owned it for 5 months. We were going pretty fast. What that bought deal allowed us to do, Peter, was really ramp things up. We started drilling in the middle of July with one drill rig, put the second one onsite in October.
PB: So many things come up for me here already. If I can pause and interject a couple of them. One thing hear you saying is that you reinterpreted the geological model of the El Tigre deposit. I've encountered that a few times recently and it's very interesting. It's a sophisticated way of approaching things that benefits from prior work done. Just to say it again -- reinterpreting a geological model.
GJ: That's right. We looked at it in a totally different way than they had and our lens was correct. We're on our way here.
PB: And one more thing -- analyst coverage. I have heard a few people complain about how difficult it can be to get that attention from analysts and investment banks. It is good to hear that you had some traction there. What was the timeline on that, again?
GJ: We had coverage within 6 months of owning the project.
PB: Wow, great work with that.
GJ: Thank you, we were very pleased with that accomplishment.
GJ: To me, it's all about two things: a management and technical team that understands epithermal, open-pit heap-leachable deposits; and finding that deposit. People who look at our results from the first 6 months have been saying to us "wow, look what you have".
GJ: There's a few more boxes to check off here. Page 14 has a little cartoon of what the deposit looks like.
GJ: In the Sierra Madre, all these big deposits that we talk about -- Pinos Altos, Mulatos, Dolores -- they are all in the lower volcanics. In many cases, the upper volcanics cover the deposits and wherever there is mineralization, it has been mined out. We are already in the lower volcanics. The upper volcanics are gone, they have been eroded away. We walk on the deposit at surface. A lot of our holes are actually collared in the mineralization.
GJ: And look at how the clavos plunges -- we got lucky here because it goes with the mountain. In many cases, the mineralization goes in the other direction and that causes the strip ratio to be different. The orientation of the mineralization at El Tigre is favourable to open pit mining. The cartoon on page 14 shows things down to about 150 meters and, based on that, we expect to be see a strip ratio of 1:1. That is one tonne of ore for each tonne of waste.
GJ: We are working on metallurgy and will be doing bottle roll tests. The metallurgy was already done by the historic operations, but we want to do it again now that we now have our own fresh core. We expect that the metallurgy is going to be conducive for a heap-leach because we're seeing oxidation as deep as 170M across the entire top of this 1.5KM long mine.
PB: Potentially a big mine there.
GJ: That is what we are working to prove. We are going to tend to our knitting and advance this project as quickly as possible.
GJ: You’ll like this, Peter. Looks at the cross section on pages 9 and 15. We've got all the underground records, the stopes, the maps, and the grades.
PB: 14 levels of it?
GJ: 14 levels of it! In the cross section, looking from the side of the mountain, you can see where the old mine was. You can see where we are targeting the resource. The circled areas on page 15 are places where we have to go and complete in-fill drilling. We're going to do that.
GJ: And all that will be the first pit! As soon as we establish an initial resource here later this year, we will move on to a PEA.
GJ: The last thing I want to touch on here is the yellow map, again. We're looking at a kilometer and a half section, but these veins continue over several kilometers. We are now mapping and sampling that. This has never been drilled. We are going to get up there at some point later this year and drill that. We see some very interesting underground workings and showings to the north and south, but this is a big land package. As you know, the mines for these big deposits are not developed as one single pit.
PB: Interesting. I expect that having several pits can help extend the mine life, overall, and spread the cap-ex associated with the processing across a broader resource base. I think I know the answer, but do you have a sense for what else could be out there?
GJ: We have early indications that there is more out there. We are exploring, and we will get to that. We would like to do a little drilling to the north, but our key priority right now is to complete all the drilling for an initial resource estimate.
GJ: We want to tell our story now. I'm here to tell it in Vancouver and we even had some interest from the United States recently. I thought the fair thing would be to let those guys trade, so we did an OTC QB listing, which means that we report in the USA. All our records are available and we have our DTC designation so we can trade electronically. That happened in January and we will begin working hard to start introducing the story to the US market.
GJ: We introduced the company to the European market late in 2016. We were at the Precious Metals Summit at Beaver Creek and were very well received with over 40 meetings. We went to Zurich and London last fall, as well. We think the upside from here is great and it's time to let the world know what we have discovered here. Thank you, Peter, for taking the time to help us get it out there.
PB: My pleasure, Glenn. I get the impression we could talk about it for hours.
GJ: We could, but I don’t think we need to quite yet.
GJ: Let me sum it up this way -- this is as simple as mining gets. We own it outright, it's a simple epithermal open-pit heap-leach deposit in a region with large amounts of mining happening today. We just need to keep going, come out with a resource, the PEA, and keep exploring. We can do all of this is on a 1.5KM area of the 35KM section of the Sierra Madre that we control, which is mostly un-explored. We are excited to get out there and explore this property.
GJ: Any questions?
PB: Yes, thanks. My head is spinning, but let me try. Do you operate your own drills?
GJ: We use a contractor. They are experts in large epithermal deposits and have drilled for a lot of majors there. In case you don’t know, drilling in Mexico is very cheap right now. It was so slow there for so long. We are getting it for approximately $70USD/meter. We get a deal with the company, where that is the all-in price for drilling up to 200M depth. The price includes camp, assays, lock-up, and everything else. As things start to pick up in the gold markets that may change, but we are taking great advantage of that now. We have the two drills turning and giving us some great core. The quality of core is fantastic.
PB: And what about the history of Oceanus Resources prior to the El Tigre project?
GJ: It goes back to the team behind Etruscan, who wanted their own public company after the takeover of the company they built in Africa by Endeavour Mining. I wanted them to look to Mexico because I had worked with this fabulous technical team in Mexico.
GJ: We had another project before this in Durango and we raised around $10M for it around $0.35 per share through the downturn. That shows our ability to raise money, Peter. It was going to be an underground deposit, which was a little different for us. We were putting out results like 20 meter of 8 g/t and nobody cared. Didn’t seem to matter what we did, so we decided that we would get back to what we knew best, which was a big open-pit heap-leach. That's when 2015 came, we acquired El Tigre Silver and that brings us to where we are today. To be frank, with the results we are seeing here at El Tigre, we are not going to be focusing on Durango. It was under option and we announced in the fall of 2016 to not renew the option. We are going to focus on this deposit in Sonora.
PB: That sounds like a wise decision given the large-scale potential of El Tigre. How do the exploration permits and mining permits work in Mexico?
GJ: We have agreements in place for the exploration of the land. All of the exploration permits with the Mexican government are all there. There will be an environmental assessment as we move through the PEA stage. The next phase of permitting will be an exploitation agreement, which we have some experience with.
GJ: If you look back, there is a 43-101 from El Tigre Silver for this project in 2013. They hired an independent geologist to do a Pre-Feasibility Study to put a reserve on the tailings from the old mine of 4 million ounces of silver equivalent, proven & probable, which included 11,000 ounces of gold. They were planning to raise some money, put the tailings into production, and then use the proceeds from that to explore the in-situ deposit further.
PB: Bootstrap, bootstrap, bootstrap!
GJ: It was a good plan, but it just didn’t get there. That tailings project is ours now. Those tailings will have their day and we'll get those ounces back some day down the road.
GJ: As part of that tailings project, they got their mining permits and had their environmental permit. We are a little ahead of the game when we get to PEA level when we start ticking off other boxes.
PB: Good to hear. Will any of the permits be grandfathered in to your operations?
GJ: No, but we have put a lot of mines into production. We expect there will be no major problems. There are no catches here, no fatal flaws. I hate to say it is a simple project, but we are drilling over an old mine. It's relatively easy exploration for what we are doing and it should be a relatively straightforward to delineate the deposit.
PB: Is there any precedent around changing from an old high-grade vein mine to a modern heap leach?
GJ: Yes, the history of Mexico is full of that -- old Spanish mines where miners came in, took the top off, then went much deeper underground with modern technology.
GJ: And you'll get a kick out of this, Peter. El Tigre was a cut-and-fill mine. That means they would take out the 18 inches of high-grade silver and gold --
PB: Which they could see…
GJ: Right. They were only 5 or 6 foot-wide stopes – think about what it was like to be a miner there – and they backfilled to make sure the whole mine didn’t fall down. The waste rock they used to fill was actually 2-3 grams per tonne! We're looking at it today, saying “wow, that was their waste rock”.
GJ: We think there were several epithermal pulses back when the deposit was formed. As those fluids came up, the stockwork around these veins – the El Tigre Formation – was such good plumbing that it led to dissemination away from these veins. That dissemination was 50 meters on one side and 50 or 60 meters on the other. That's why we see those 100 meter widths of mineralization. It is very continuous across that width.
PB: Great.
GJ: And think about this -- the center is already taken out of most of our holes.
PB: That’s right! No high-grade-smearing there.
GJ: When we come out with 127 meters of 2.18 g/t, the grade holds very well. It will peter out to half at 30 or 40 meters out and then it goes down to 0.2 at the end, which is normal with these types of deposits, but there is no sweetie in the middle.
GJ: This will potentially be a large heap-leach project but, as with other deposits in the Sierra Madre, there would be a mill as well. You're not going to throw all of that high-grade on a leach pad. The old timers didn’t get it all! There will be a small mill for the high-grade.
PB: And it's possible to separate out that ore relatively easily?
GJ: Yes, very standard stuff.
PB: Do you have underground access?
GJ: The bottom seven levels are flooded, the top seven levels are not. We have been through a lot of the mine. There is a Johnny-cross-cut and we've reported results on that. It goes right through the guts of the whole deposit and we can walk on it, sample it, and see it. It matches up perfectly with everything we've been seeing.
GJ: There is a big camp there – there are 30 guys up there today. Two full drill teams, with around 10 geologists logging core as it comes in. We have taken a few of the geologists and let them get out to the north and south to explore. We couldn’t do that before, but are starting to do that now.
PB: I imagine the geologists like a chance to get out in the field and do some prospecting. Any comment on historical maps of the area?
GJ: Yes, we were lucky with that. The old mine was shut down in the 1930s and, in 1982, Anaconda was in there looking for flux. When they showed up in the 80's, all the old mine maps, underground maps of the mine, records of head grade -- all of that was still there. Guess what they did with it? They put it in storage at the University of Wyoming.
PB: What a great thing to do.
GJ: We thought so, too. We went and got it, and it has been very helpful for us. Basically, what we have in our model on page 9 was built without stepping foot in the mine. We have the location of the old stopes down to the inch based on these old underground maps. The records showed very good grade at depth.
PB: What a unique situation. Again, I imagine the geologists had a great time with all of that.
GJ: We have our own modeller on staff in Mexico. Our independent geologist will build a model, but we are going to go section-section and build our own model as well. We have taken all the surface information, all the drilling by El Tigre Silver, all of the old underground records from Anaconda, and our own drilling. We have a very good handle on this deposit. We understood it very quickly.
PB: Again, that is a pretty unique situation. Thanks very much for introducing me to Oceanus and El Tigre today.
GJ: My pleasure, Peter. Thank you for taking the time and I encourage people who are interested in learning more to get in touch with us as we’re always keen to hear from investors.
